Will the U.S. Dept . of Justice Find Your Offshore Account?


At a recent tax conference a senior official of the U.S. Department of Justice DoJ) is reported to have said:
“We’ll be looking for you”.

The statement was reportedly made in discussion of the 106 Swiss banks that have asked for non-prosecution agreements in exchange for providing information about U.S taxpayers they assisted in evading U.S. taxation of their offshore accounts.

Under the terms of the non-prosecution offer those banks that know or suspect that they have participated in programs designed to hide financial accounts from U.S. taxation had until then end of 2013 to submit Letters of Intent to seek non-prosecution agreements. They now await approval of the DoJ before submitting account holder information. But not all Swiss banks applied and not all unreported foreign financial accounts are in Switzerland. So how will the DoJ find those accounts?

The statement of the senior Justice Department official is clear indication that the DoJ, IRS and other agencies will and are cooperating to identify offshore financial institutions. In addition substantial remedies/penalties are provided for in the Foreign Account Tax Compliance Act, (FATCA). It is clearly the belief of the DoJ that going after the financial institutions will be the most productive approach to finding unreported accounts. Once found U.S. taxpayers who have not already come forward can expect to face the maximum FBAR penalties which include (1) prosecution, (2) a civil penalty of the greater of $100,000 or 50% of the highest account balance for up to six years plus civil fraud penalties under the Internal Revenue Code. This is a non-exclusive list.

The discovery of offshore accounts often leads to discovery of unreported sources of the funds. There are other penalties that can also be applied as a result, including penalties for failure to report foreign gifts, bequests and inheritances, and income from controlled foreign corporations.

The Offshore Voluntary Disclosure Program (OVDP) is still available to taxpayers who act before they are discovered. A single miscellaneous penalty of 27.5 percent of the single highest year account balance is required in lieu of all other penalties, except for a 20% accuracy related penalty which is imposed on the tax on the unreported income. This structure, while serious in amount is typically better than any other option.

Taxpayer who are playing the audit lottery, opting to avoid being discovered, should reconsider in light of the professed approach of the DoJ that it is “…looking for you”.


Topics:  DOJ, FATCA, FBAR, IRS, Non-Prosecution Agreements, Offshore Funds, OVDP, 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.

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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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