IRS Expanding Offshore Enforcement

by Sanford Millar

Recently the Acting IRS Commissioner said:

“While successful implementation of the Foreign Account Tax Compliance Act will assist the IRS in pursuing tax evaders, it is not the government’s sole answer to the long-term challenge of offshore compliance”

“He said the IRS will take whatever action is necessary to succeed in offshore compliance over the long term.”
A year end review of the tools the IRS now has may be of help in understanding why it is now important for U.S. taxpayers to come forward rather than wait to be discovered.

First, Form 1040 now asks directly on schedule B if you are required to file a Report of Foreign Bank or Financial Account (FBAR).

Second, a new IRS Form 8938 must be filed if Specified Foreign Financial Assets exceed stated thresholds during the year or at year end. The threshold for individuals is $75,000 during the year or $50,000 at year end. Specified Foreign Financial Assets, include bank and financial accounts, but also include interests in offshore businesses, trusts, and partnerships.

Third the IRS through the Department of Justice is seeking producing of offshore account records from U.S. taxpayers by Grand Jury Summons under the Required Records Doctrine. Taxpayers are compelled to testify as courts have held the Fifth Amendment does not apply to testimony pertaining to documents that a taxpayer must maintain.

Fourth, since there is no taxpayer -accountant privilege in criminal tax cases accountants are being called as witnesses against their clients to establish that the non-disclosure of the foreign accounts and foreign assets was willful.

Fifth, the IRS is using John Doe subpoenas for records of U.S. taxpayers which accounts are held at foreign financial institutions with branches in the U.S. and making Treaty Requests for similar information held at offshore institutions. These treaty requests are broad in scope, asking for names, addresses, and account history on U.S. taxpayers that have accounts in the institution, not just specific individuals suspected of tax evasion.

Finally, the U.S. is in the process of signing 50 or more inter-governmental information exchange agreements under FATCA.. Participating member states, include Great Britain, Singapore, Mexico, Lebanon, and many more some known previously as “bank secrecy havens”.

The takeaway from these IRS actions is that those taxpayers do not come forward now, will face the IRS with the presumption that there conduct in avoiding disclosure was “willful” and they will likely face the worst case civil penalty assessments if not criminal prosecution. The maximum civil assessment under the FBAR rules (as part of the Bank Secrecy Act) is a civil penalty of 50% of the highest account balance per year or $100,000 whichever is greater. Under the IRC the willful (civil fraud) penalty for not reporting taxable income is 75% of the unreported income per year, plus interest.

It would seem a better move for all U.S. taxpayers with unreported foreign accounts to come forward rather than wait for FATCA disclosures by foreign financial institutions or other IRS enforcement steps to produce terrible results.


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

Written by:

Sanford Millar

Law Offices of Sanford I. Millar on:

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