Leavers are targets of Offshore Tax Enforcement

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Leavers are those U.S. taxpayers who have undeclared offshore financial accounts and who move those accounts from one bank to another, often moving to other countries in the hope of avoiding disclosure of the account to U.S. authorities. The theory, actually the myth, is that a closed account will not be reported to the U.S. IRS or if reported, will be ignored.

On August 29 the U.S and Swiss governments issued a joint statement on tax evasion. An important part of the joint statement deals with leavers.

“The program will significantly assist the department’s efforts to investigate and prosecute U.S. taxpayers who, when faced with the risk of detection, chose to move funds away from banks under investigation to banks that they believed might be better havens for tax secrecy. A key component of the program requires cooperating banks to provide information that will enable the United States to follow the money to other Swiss banks and to banks located in other countries.”

What this statement means is that if anyone is found to have moved funds between financial institutions in the hopes of avoiding their discovery, their conduct will be deemed on its face to be “willful” and the U.S. taxpayer will be subject to civil and criminal penalties accordingly. The civil penalties for a willful failure to disclose offshore financial accounts are determined under the Bank Secrecy Act (BSA) and the Internal Revenue Code (IRC). Under the BSA civil penalties are the greater of $100,000 or 50% of the highest account balance per year on all offshore account where the total of the account balances was $10,000 or more and a Report of Foreign Financial Account (FBAR) was not filed. Under the IRC the penalty will be 75% of the tax due based upon fraud, plus penalties for failure to file information returns, if required. Criminal penalties, range from 5 years plus a $250,000 fine plus civil penalties for BSA violations and vary with increasing severity under the IRC.

For leavers, and others who have undisclosed offshore accounts, the time to come forward and enter the Offshore Voluntary Disclosure Program (OVDP) is now if there is any hope in avoiding willfulness actions by the U.S. The choice is simple pay an OVDP penalty of 27.5% of the highest single year account balance in the preceding 8 years plus tax on unreported income and a 20% accuracy related penalty on the tax, or run the risk of discovery, and face prosecution and severe civil penalties. With international banks coming forward to avoid their own prosecution, the promise of bank secrecy will be found wanting and some U.S. taxpayers will be left out in the cold.

 

Topics:  Bank Secrecy Act, Banks, Enforcement, Foreign Bank Accounts, Foreign Banks, IRS, Offshore Funds, OVDP, Reporting Requirements, Tax Evasion

Published In: Criminal Law Updates, Finance & Banking Updates, International Trade Updates, Tax 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.

© Sanford Millar, Law Offices of Sanford I. Millar | Attorney Advertising

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