IRS-Revived Scrutiny of Foreign Accounts: Amnesty Offered But Uncertainty and Perils Remain

About 25 years ago, the IRS used an undercover operation to find out who had bank accounts at an offshore bank. More recently, the IRS has been trying to uncover the identities of people who have money stashed in offshore accounts and are using credit or debit cards to access it. They’re doing this by asking credit card companies and businesses for information. If the IRS finds out that someone has been hiding money in offshore accounts, they will investigate the person. They can demand records from the account holder or get a court order to make the person and other people produce the records. The IRS announced a program in 2003 to give amnesty to people who haven’t followed the rules for reporting money in foreign accounts. This program can protect people from certain penalties and criminal prosecution, but they have to follow specific rules to qualify for the amnesty. Some U.S. taxpayers use foreign accounts to avoid paying taxes on their income. This can be done through offshore companies or trusts. However, this is often illegal and can result in serious consequences. Offshore accounts are often used to hide income that has not been reported to the IRS or that comes from illegal activities. This is only made possible because of the secrecy laws in other countries. If you have a bank or securities account in another country with more than $10,000 in it at any time during the year, you have to tell the government about it by June 30th of the next year. You have to fill out a form called the FBAR and give them detailed information about each account. This is to make sure people aren’t using foreign accounts to hide money. If you have a foreign bank account, you must report it to the government if you own more than half of a business, receive most of your income from a trust, or have access to the money in the account. You also have to report it if you have the power to control what happens to the money in the account. If you don’t report your foreign account, you could be fined up to $100,000. Even if you get in trouble for not reporting your account in a criminal case, you can still be fined in a civil case. This is important to know because the government is planning to start enforcing these rules more strictly. If you have a foreign bank account, you must report the income from it to the IRS. If you don’t, you can face civil penalties, like owing more money and having to pay interest. There are also criminal penalties for not reporting the income, like tax evasion or filing a false tax return. These penalties can apply even if you’ve already been prosecuted or paid money back to the IRS. It’s really important to follow the rules for reporting foreign bank accounts, because not doing so can get you in a lot of trouble. If you’ve committed tax offenses or failed to report foreign income, you could face criminal prosecution and jail time. The IRS offered a program called the Offshore Voluntary Compliance Initiative (OVCI) to help people come forward and fix their mistakes without facing harsh penalties. The deadline to apply for the program has passed, but it’s important to know that anyone who hasn’t reported foreign income or filed required forms can still face consequences. To participate in the OVCI, a taxpayer must tell the IRS they want to join and provide information about their offshore money and how they got it. They must not be under investigation, known to the IRS for not following the rules, have convinced others to hide money offshore, or have made money illegally. If they qualify, they have 150 days to file all their late tax returns and pay what they owe. Even though joining the OVCI reduces risk, there are still dangers for those who join, those who don’t, and sometimes for their lawyers. If a taxpayer only joins the OVCI for 1999-2001, earlier years might still be subject to examination. It’s important to fully participate in the OVCI and not try to exploit the process, or else you could be denied the benefits and face penalties. If you engage in the OVCI in bad faith or don’t actually qualify for it, the IRS can reopen your tax returns and take legal action against you. Also, if your lawyer lies to the IRS on your behalf, their confidentiality agreement with you won’t protect them and they could end up working against you. For taxpayers who can’t apply for the OVCI or don’t meet the requirements, the risk of being prosecuted for tax evasion can continue for a long time. If you’re not eligible for the OVCI, you can still make a voluntary disclosure, but you won’t get amnesty and could still face civil tax and FBAR penalties. The IRS doesn’t like it when people try to quietly fix their mistakes without using the OVCI, so they might not accept your disclosure. If you’re already being audited, but still make a full disclosure, you might get some relief from civil tax penalties. If someone has illegal income and doesn’t participate in a program to come clean to the IRS, they could face prosecution for other crimes, like money laundering. Even if they do participate in the program, they could still be in trouble if they’re found to have committed a different crime that the IRS doesn’t handle. The IRS has been working with other countries to get information on people who may be hiding money offshore. They can use legal orders to force people to hand over financial records, even if it means getting records from someone else, like a business or a lawyer. If you fail to report your foreign bank accounts to the IRS, you could face criminal charges. The IRS has a program where they may not recommend criminal charges if you disclose your noncompliance before they find out. However, this doesn’t guarantee immunity from prosecution. It’s also important to report any control or ownership of funds in foreign entities. And remember, the IRS can impose penalties for filing a false tax return, and they don’t have to prove that you actually owe taxes. If you don’t answer all the questions on your tax forms about foreign accounts, you could get in trouble for not reporting them. There are also penalties for not filing certain information returns for foreign assets, and the IRS can go back several years to investigate. In some cases, negotiations can be made with the IRS to settle tax issues, but there are serious consequences for fraud or misrepresentation. In extreme cases, advice on dealing with illegal money can lead to criminal charges. It’s important to follow tax laws and report foreign assets to avoid legal trouble. Steven M. Harris is a lawyer in Miami who helps clients with tax issues. He is very knowledgeable about tax laws and has written a book about tax fraud. He is also involved in a group that works on improving the legal system.

Source: https://www.floridabar.org/the-florida-bar-journal/irs-revived-scrutiny-of-foreign-accounts-amnesty-offered-but-uncertainty-and-perils-remain/