False Foreign Gift Claims and Wire Fraud

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A scheme that some dual national taxpayers have used involves claiming exemption from foreign jurisdiction taxation because they are U.S. taxpayers and then not reporting the offshore account or its income as required by U.S. law. Specifically, the Bank Secrecy Act (BSA) requires the filing of a Report of Foreign Bank Account (FBAR) by all U.S. taxpayers who have signature authority or control over a foreign financial account if that account(s) in the aggregate have $10,000 or more in a calendar year. Further, the Internal Revenue Code. (IRC) taxes income on a worldwide. In addition gifts, bequests and inheritances must be reported if certain thresholds are met in a calendar year.

For those taxpayers who have offshore accounts that have been established in their names to avoid foreign taxation, in addition to remedies available under the BSA and IRC the U.S. Supreme Court, in PASQUANTINO (2005)has held that use of a U.S. wire in aid of foreign tax evasion is a crime under U.S. law.

The U.S. has in place over 70 intergovernmental exchange agreements under the Foreign Account Tax Compliance Act (FATCA). FATCA audits may begin as soon as 2015. But, in addition to FATCA agreements, the U.S. also has mutual legal assistance agreements. While the agreements do not require enforcement of foreign revenue laws, the WIRE ACT may very well accomplish the same mission according to the Supreme Court. Therefore, the use of false account ownership statements gives both the host government and the U.S. government an incentive to prosecute such taxpayers and do so potentially outside the scope of the voluntary disclosure program or Streamline Procedures. This argument may find resonance in those cases where the taxpayer has failed to file a Report of Foreign Gift, Bequest or Inheritance (Form 3520), failed to file FBARS and failed to disclose foreign financial accounts on the Statement of Specified Foreign Financial Assets (Form 8938). A late filing of these forms through a voluntary disclosure may mitigate the risk.

As with all voluntary disclosures or elections to use the Streamline Procedures, such decision should only be made with the advice of competent counsel and after full disclosure of all facts and circumstances.

 

Topics:  Bank Secrecy Act, Bribery, FATCA, FBAR, International Tax Issues, Offshore Banks, Offshore Funds, Wire Fraud

Published In: Criminal Law Updates, Finance & Banking Updates, International Trade Updates, Tax Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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Sanford Millar
Law Offices of Sanford I. Millar

Experience and Qualifications: Over 30 years of experience in domestic and international tax... View Profile »


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