Hiding Money or Income Offshore Among the “Dirty Dozen” List of Tax Scams for the 2015 Filing Season
The Internal Revenue Service recently announced on January 28, 2015 that avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season. Through the years, offshore accounts have been used to lure taxpayers into tax scams and schemes. Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes. Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them.
IRS Commissioner John Koskinen stated that “the recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore…taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”
Since the first voluntary disclosure program for unreported offshore accounts known as the “Offshore Voluntary Disclosure Program (OVDP)” opened in 2009, there have been more than 50,000 disclosures and the IRS has collected more than $7 billion from this initiative alone. The IRS conducted thousands of audits of unreported offshore accounts that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.
The IRS reiterated that it remains committed to stopping offshore tax evasion and finding unreported offshore accounts wherever it occurs. Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil. With the opening of the International Data Exchange Service (IDES) that brings about a secure system of automated, standardized information exchanges among government tax authorities, this will enhance the ability of the IRS to detect hidden accounts and help ensure fairness and compliance in the US tax system.
At Tax Samaritan, we anticipate at some point in the future that the IRS will use this information in an automated fashion to identify under-reporting of income and non-disclosure of foreign. We anticipate that the IRS approach will be similar to processes used today to match information reported on the Form 1040 to what has been reported on your W2 and other tax forms to the IRS. We believe that this kind of third-party reporting of foreign accounts will lead to much higher tax compliance rates and unfortunately those taxpayers caught hiding money or having unreported offshore accounts will be subject to significant civil and potentially criminal penalties.
Hiding Income Offshore And Unreported Offshore Accounts
Over the years, numerous individuals have been identified as having unreported offshore accounts by evading U.S. taxes and hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.
The IRS uses information gained from its investigations to pursue taxpayers with unreported offshore accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.
While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements and have unreported offshore accounts are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their unreported offshore accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.
At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS recently stated that this program offering taxpayers a way to disclose their unreported offshore accounts will be open for an indefinite period until otherwise announced.
What To Do If You Have Unreported Foreign Accounts
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
If you unreported foreign accounts or have not made complete disclosures in the past, now is the time to get back in compliance and file your late FBAR and amended FBAR before the IRS catches you in its snare. Once the IRS is aware of underreporting, the potential penalties can skyrocket to more than 50 percent of the balance in the account.
If you would like a quote, please click on the button below for a free, no obligation Tax Preparation quote and/or free 30-minute consultation to discuss your situation regarding your unreported foreign accounts further:
Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.