IRS Offshore Tax Evasion Investigations
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The Bank Secrecy Act gave the Department of Treasury authority to establish recordkeeping and filing requirements for U.S. persons with financial interests in or signature authority or other authority over financial accounts maintained with financial institutions in foreign countries.
This provision of the law requires that a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS' enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore. An accountant or practitioner must exercise due diligence to determine whether his or her client is subject to FBAR requirements, but he or she is not required to conduct a tax audit.
The FBAR covers a calendar year and must be filed no later than June 30th of the following year and includes any interest a U.S. person has in:
- Offshore bank accounts
- Offshore mutual funds
- Offshore hedge funds
- Offshore variable universal life insurance policies
- Offshore variable annuities a/k/a Swiss Annuities
- Debit card and prepaid credit card offshore accounts
The penalties for FBAR noncompliance are stiffer than the tax lien penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.
The Department of Justice (DOJ) has announced that its investigation of offshore tax evasion and conjunction with the IRS will expand to include some of Europe's largest banks and their foreign affiliates such as HSBC and Credit Suisse who have been alleged to have helped U.S. clients hide up to $30 billion from U.S. tax authorities. The IRS and DOJ investigations highlight differences in U.S. and Swiss law. Switzerland does not criminalize routine tax evasion, and bank secrecy rules in Switzerland prohibit disclosure of account holder information in these cases.
U.S. officials have already obtained previously "secret" UBS bank information reportedly revealing that some 20,000 U.S. citizens have maintained offshore accounts with UBS, and that approximately 17,000 of those accounts were never disclosed to the IRS. Estimates of willful tax evasion of $300 million per year have been reported previously.
The Swiss Banks attempted to get protection from the Swiss Courts to prevent the compulsory release of account information but the highest Swiss Court ruled that the agreement reached in 2008 between the United States and Switzerland which was incorporated as part of the UBS plea agreement constitutes a "bilateral treaty" between the two countries. As such, the terms of the treaty are fully enforceable provided the Swiss Parliament ratifies it. The treaty could be ratified by the Swiss Parliament as early as June 2010. In anticipation of this ratification, the Swiss Federal Tax Office will continue to seek orders to ensure that UBS provides the records it promised for the 4,450 U.S. clients designated during 2009.
We can assist with IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.
On March 23, 2009 the IRS issued a series of memorandums that outline a new voluntary disclosure program for unreported foreign income. The program designated as the IRS Offshore Income Reporting Initiative (the "Initiative") was initially available until September 23, 2009 and then extended to October 15, 2009. Taxpayers who qualify for the Initiative will be required to follow certain filing procedures in exchange for not being subject to criminal and civil fraud penalties.
The Initiative requires that taxpayers:
- File 6 years of back tax returns reflecting unreported foreign source income;
- Calculate interest each year on unpaid tax;
- Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and
- Apply a 20% penalty based upon the highest balance of the account in the past six years (Under certain circumstances, taxpayers entering into this program may be able to qualify for a penalty at the rate of 5%).
In return, IRS has agreed to not pursue:
- Charges of criminal tax evasion; and
- Other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).
Even though the deadline to apply for the amnesty has expired, because the account information has not been fully released to the IRS, this may be the last opportunity for taxpayers to resolve unreported foreign income issues without criminal prosecution. We recommend that taxpayers in this situation act immediately and seek assistance from an IRS debt tax attorney. For prompt evaluation of your case, we encourage you to click here to register for our Tax Advisory Service. You may also contact us using our toll-free number at 866.494.6829.