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HSBC Clients With Asian Accounts Said to Face U.S. Tax Probe

The Justice Department is conducting a criminal investigation of HSBC Holdings Plc clients who may have failed to disclose accounts in India or Singapore to the IRS.  Already some U.S. taxpayers have received a letter from the Justice Department that said prosecutors had “reason to believe that you had an interest in a financial account in India that was not reported to the IRS on either a tax return or a Treasury Department report disclosing foreign accounts”.  The letter goes on to state “You are advised that you are a subject of a criminal investigation being conducted by the Tax Division. Destroying or altering documents relating to the probe constitutes a serious violation of federal law, including but not limited to obstruction of justice”.

The letters went to U.S. residents who have ties to India, including people who inherited money from relatives or maintained assets there after leaving the country. Some letters referred to undisclosed bank accounts in Singapore.

This probe shows how the U.S. is expanding its crackdown on offshore tax evasion beyond Switzerland its largest bank, UBS. London-based HSBC is Europe’s biggest lender by market value and appears to be IRS’ next big target.  For the IRS to be sending letters to U.S. taxpayers means that prosecutors got data on HSBC account holders from the bank.

UBS avoided prosecution by admitting it aided tax evasion from 2000 to 2007, paying $780 million, and agreeing to disclose secret account data on more than 250 clients. It later agreed to disclose data on another 4,450 clients.  Officials at HSBC are likely cooperating with IRS in releasing data in an effort to avoid the same magnitude of fines that UBS had to pay.

The IRS is placing more than 800 people to analyze data from foreign banks and compare it to what was reported on U.S. taxpayers’ tax returns.  The IRS is also increasing staff in eight overseas offices, including Hong Kong and the IRS is opening offices in Beijing, Sydney and Panama City.

The IRS boasts that they just took down the largest private wealth management bank in the world (UBS).  Do you really think they are going to have trouble doing the next one?  The Asian banks recognize this and do not want to have a UBS-type situation. They want to do it nice and quiet. They don’t want to be the focus of attention. The Department of Justice and IRS are devoting a ton of resources to this issue.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI).  Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

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