For decades it was more or less standard operating procedure for many wealthy Americans to stash assets and funds in foreign banks to conceal the amount of their income or assets. The reasons for these practices were numerous. Some may have attempted to protect their assets from estranged family members or a former spouse, however in most instances the practice was chiefly done to reduce the amount of tax the individual owed. While in those days there was at least an argument that could be made regarding the practice’s legality, the same does not hold true today.
Today, the gray area has been replaced by the mandatory disclosure requirements set forth by Foreign Account Tax Compliance Act (FATCA) and the requirement to file a Report of Foreign Bank and Financial Accounts (FBAR). Discovery of noncompliant taxpayers is facilitated by the more than 100 intergovernmental information sharing agreements and data leaks from the financial institutions, themselves. Without belaboring the point, if you have foreign assets and have failed to disclose them and pay taxes you are likely to face serious civil or criminal tax consequences in the forthcoming years.
FATCA and FBAR Provide Federal Prosecutors with tools to Catch Americans who Conceal Income
FATCA and FBAR both set forth requirements for when foreign financial accounts must be disclosed. The FBAR filing requirement actually stems from provisions of the Banking Secrecy Act. Under the Act, US taxpayers with an interest in or signature authority over foreign accounts where the account balance exceeds $10,000 must disclose that account or face potential civil or criminal consequences. By contrast the FATCA disclosure requirements are much broader than FBAR. FATCA disclosures cover a number of foreign accounts and assets when the value of those accounts or assets exceeds $50,000. Individuals can have an obligation to disclose accounts under either FBAR, FATCA or both. A willful failure to make these disclosures can result in fines and penalties that exceed the balance originally contained in the account.
International Information Sharing Agreements Have Eroded Banking Secrecy in Foreign Jurisdictions
Today many nations have signed information sharing agreements with the United States. Under the terms of these agreements, foreign financial institutions are, generally, required to disclose accounts that have links to the United States. The method of disclosure is dependent upon the form of agreement that is in effect in the country. For countries with model 1 agreements, foreign financial institutions pass account information to their own taxing authority who then turns that information over to the US government. In model 2 countries, the foreign financial institution may directly share account information with the IRS.
In any case if an information sharing agreement is in effect where your foreign accounts are located that information is likely to eventually make its way to the IRS. Working with an experienced tax attorney can help you understand how the agreement functions in that particular country as part of an offshore account tax risk assessment.
Data Breaches Can Reveal the Identity of Account Holders
A number of years ago a veritable treasure trove of customer account data was obtained from the Swiss branch of HSBC by a security researcher working for the company. As part of a plea deal to avoid criminal prosecution he provided French authorities with the data he obtained from HSBC. In all, the data breach covered approximately 30,000 accounts containing a total of $120 billion in assets. Of those 30,000 accounts, nearly 3,000 accounts belong to individuals with ties to the United States.
According to findings released by The Guardian, those accused of concealing money in secret Swiss accounts include prominent individuals including:
- Film directors
- Hedge fund managers
- Star sports players
- Political donors
- Retail tycoons
Further reports from 60 Minutes indicate that the bank worked with some clients to hide “black” accounts. In other instances the bank may have facilitated tax evasion by permitting clients to withdraw “bricks” of foreign cash from its Swiss branch. Typically large cash transactions are a warning sign to bankers that something less than ethical was going on. But rather than question its accountholders or alert government authorities, the bank facilitated these transactions.
Unfortunately for those who participated in this scheme, the account records are now in the hands of news organization and taxing authorities including the IRS. Can you explain why you traveled to Switzerland to withdraw funds in cash in US dollars rather than requesting a wire transfer? If you cannot, the release of these files should indicate that you may face serious tax consequences.
Working with an experienced tax attorney and making voluntary offshore disclosures now can mitigate the consequences of offshore tax problems. If you wait to take action, however, you are likely to find a narrowed set of options and harsher penalties are likely. To discuss your tax concerns call the Law Offices of Robert Hoffman at (800) 897-3915 or contact us online.