IRS Enforcement Action to Combat Offshore Tax Evasion

In his closing remarks, IRS Commissioner Doug Shulman affirmed that the IRS has significantly increased its resources and focus on offshore tax evasion. Since 2009 IRS gave taxpayers a chance to come in voluntarily and avoid going to jail. With the IRS’ mining of information it has received over the last few years, the IRS has launched its next wave of investigations on banks, bankers, intermediaries and taxpayers. Not only is the IRS looking to collect additional revenue for past misdeeds but to also to fundamentally change the risk calculus of taxpayers who are thinking about hiding their money overseas and deter the next generation of taxpayers from using hidden bank accounts to cheat on their taxes.

The Bank Secrecy Act 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’s enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The penalties for FBAR noncompliance are stiffer than the civil tax 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 U.S. since 2009 has prosecuted about 70 U.S. taxpayers and 30 bankers, lawyers and advisers in a crackdown on offshore tax evasion and officials are still swiftly moving forward with further investigations and prosecutions.

In advance of the expected large wave of enforcement to be commenced by IRS, the IRS had established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls the Offshore Voluntary Disclosure Initiative (OVDI).

OVDI allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.  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.