On this blog we have warned taxpayers time and time again about the dangers of holding or controlling undisclosed foreign accounts and trusts. Since Congress amended the Bank Secrecy Act to create a new penalty for even inadvertent FBAR disclosure errors and strengthened the penalty for willful filing failures, Congress has continually strengthened the tools provided to prosecutors. Today, taxpayers holding undisclosed foreign accounts have the greatest likelihood of being detected at any time in the history of the U.S. Tax Code.
Unfortunately for non-complaint taxpayers, violation of offshore tax disclosure laws like Report of Foreign Bank and Financial Accounts (FBAR) or Foreign Account and Tax Compliance Act (FATCA) carries harsh penalties. Taxpayers who run afoul of these laws can expect to pay high fines and penalties. In many cases, the fines and penalties may exceed the original value of the secret account. Furthermore, if concealment or other actions were taken by the taxpayer, criminal penalties are feasible. Criminal penalties can include a lengthy federal prison sentence.
Even more unfortunately for noncompliant taxpayers is that more and more of the government’s systems to detect noncompliant taxpayers are coming online. The IRS and Department of Justice have devoted significant resources to catching individuals who use offshore accounts and trusts to evade taxes. If detected, the government will not hesitate to launch an aggressive prosecution. The mainstream press is catching on to the level of risk faced by taxpayers. Have you taken action to protect your accounts or assets?
Wall Street Journal Sounds the Alarm for Taxpayers Holding Undisclosed Foreign Accounts
Since the end of September or early October, the IRS has engaged in the automatic swap of tax and other financial information with a number of nations. This data is exchanged digitally and without human intervention. These data exchanges represent the latest logical step in the development of FATCA. While FATCA began as a law designed to encourage or coerce the disclosure of certain financial information, these exchanges further expand on that foundation. To date, more than 100 nations have signed FATCA or other information-sharing agreements with the U.S. government. According to figures provided by the Wall Street Journal, the IRS has received information from 70 or more countries. The agency has sent tax and account information to up to 34 nations.
Tax enforcement efforts have driven more than 54,000 taxpayers into the Offshore Voluntary Disclosure Program (OVDP) and other similar programs created by the IRS. In exchange for entry into the program and a voluntary accounting for past noncompliant behaviors, the taxpayer will only have to pay reduced penalties. Furthermore, taxpayers who enter into the standard OVDP program receive protection against facing criminal penalties for their activities. While the Streamlined disclosure program can provide a pathway to even more significant reduction in penalties, it does not provide the same protection from criminal penalties.
Which Countries are Currently Eligible for the Automatic Tax Information Swaps?
There are currently about 30 nations where the automatic exchange of tax data is already under way. These nations have been determined by the IRS and Department of the Treasury to be in compliance with appropriate standards of data security. Nations currently engaging in reciprocal exchange of data collected under §§1.6049-4(b)(5) and 1.6049-8 are:
- Czech Republic
- Isle of Man
- New Zealand
- South Africa
- United Kingdom
If you have or control foreign undisclosed accounts in any of these jurisdictions, you face an extremely high likelihood of facing offshore tax issues. However, even if your secret accounts are parked in a different nation doesn’t mean that you are safe. The United States has agreements to obtain tax data from many other nations even if the process is not yet automatic or reciprocal. Furthermore, the U.S. government is continually redoubling its efforts to detect and eliminate offshore tax evasion.
Facing Offshore Tax Problems?
If you have been snared by the IRS or Department of Justice’s latest offshore enforcement efforts, you likely face serious consequences including significant fines and a potential prison sentence. However, an experienced tax attorney from the Hoffman Law Offices can help you understand your options and potential legal options you have. Whether you ultimately decide to engage in OVDP or litigate the issue, we are dedicated to finding ways to reduce the consequences faced by taxpayers. To schedule a confidential, free initial consultation call 800-897-3915 or contact us online today.