Non-Citizens Risk Immigration Status for Offshore Bank Accounts

by Moskowitz LLP

[authors: Stephen M. Moskowitz, Esq. and Anthony V. Diosdi, Esq. ]

The increased focus by the IRS on foreign income has generated a lot of news and a slew of criminal prosecutions.  While US citizens need to consider the possibility of monetary penalties or a long prison sentence, resident non-citizens (green card holders) also need to worry about the possibility of being deported after they serve their prison sentence and are stripped of their assets.  What is required of resident non-citizens and what are the consequences for failing to disclose offshore accounts and foreign interest income?

All “United States persons,” including green card holders, are compelled to report all their global income, including interest income earned in foreign bank and financial accounts, to the Internal Revenue Service.  According to the general definition in Internal Revenue Code Section 7701(a)(30), both United States citizens and non-citizen residents qualify as “United States persons”.  The international portion of a “United States person’s” income is required to be reported on the following forms:   See Offshore & Foreign Compliance

Form 1040, Schedule B, Part III

This form contains three yes/no questions you must answer regarding any foreign accounts and trusts that you have an interest in and directs you to two additional forms to complete, Form TD F 90-22.1 for foreign accounts and Form 3520 for foreign trusts.  In the event that you are required to file Form TD F 90-22.1, you must also report on Form 1040, Schedule B, Part III where the financial account(s) are located.

Form TD F 90-22.1

The Report of Foreign Bank and Financial Accounts, also known as the FBAR, is required when the total value of foreign financial accounts held is in excess of $10,000 USD at any time within the calendar year.  This includes accounts in which you had signature authority but not an ownership interest.  The form is filed separately from your tax return and reported to the Department of the Treasury.

Form 3520

A separate Form 3520 is required to be filed with your tax return for each qualifying foreign trust transaction or qualifying foreign gift received.  Examples of qualifying transactions include distributions received from foreign trusts and gifts of more than $100,000 from nonresident alien individuals or foreign estates.  A full list of qualifying transactions and exceptions can be found in the Form 3520 instructions.

Form 8938

In tax years beginning after March 18,2010 (for most this is their 2011 filing), “United States persons” meeting the asset thresholds are also required to file the new Statement of Specified Foreign Financial Assets (Form 8938).  For unmarried and married persons filing separately that reside in the U.S. the threshold is $75,000USD at any point during the year or $50,000USD at the end of the tax year.  Married persons residing in the U.S. filing a joint return are required to file this form when their total foreign financial assets exceeds $150,000USD at any point in the year or $100,000USD on the last day of the tax year.  Full filing requirements including exceptions and qualifying assets can be obtained through the Form 8938 instructions.

Failure to file any forms required to disclose the existence of any offshore financial accounts or any income acquired from said foreign financial accounts opens a “United States person” to the possibility for Criminal Tax Crimes and criminal penalties as well as Civil Tax Assessments and penalties.

Filing a False Tax Return

If an individual is proven by the IRS or Department of Justice to have willfully signed or filed a tax return or other document such as the FBAR that he or she did not believe to be true and correct in a material matter, they could be convicted of filing a false tax return.  An individual may also be prosecuted for filing a false tax return if it is proven that the individual willfully aided or assisted in the preparation of a tax return, affidavit, claim, or other document that is fraudulent or false as to any material matter with knowledge that the document would be submitted to the IRS.

Tax Evasion

Willfully attempting to defeat or evade a federal tax due and owing or evasion of payment of an assessed tax can lead to prosecution for tax evasion.

Willful Failure to File an FBAR

Choosing not to file an FBAR can lead to criminal prosecution.  There are increased penalties if this violation occurs concurrently with the violation of other laws or is part of a pattern of illegal activity involving more than $100,000USD in a 12-month period.

Conspiracy to Defraud

If two or more individuals agree to commit a substantive offense against the United States or to defraud the United States, and if the commission of the overt act is in furtherance of the conspiracy, charges could be brought forward for conspiracy to defraud the United States.


In addition to the formerly mentioned criminal penalties, various civil penalties can be charged, as well as various penalties under state law, for failing to disclose offshore income.  The implications of conviction go further.  Persons failing to disclose foreign account(s) and/or foreign source income and suffering a criminal conviction could face incarceration, serious fines, loss of child custody or even termination of pension benefits.  Some aliens receiving criminal convictions may even face deportation.

One such judgment resulting in deportation is “aggravated felony”.  Aggravated felony includes offenses that, as defined in Title 8 of the United States Code §1101(a)(43)(M),”(i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or (ii) is described in section 7201 of Title 26 (relating to tax evasion) in which the revenue loss to the Government exceeds $10,000.”  Aliens in the United States receiving an aggravated felony conviction are not eligible for review from deportation or asylum.  Therefore, it is important for noncitizens with previously undisclosed foreign bank accounts or foreign source income to obtain competent legal counsel to advise them of any immigration consequences that may result from a tax crime criminal conviction.

Unfortunately, not all criminal attorneys representing noncitizen taxpayers are properly prepared with the necessary knowledge of immigration law to competently represent their clients.  This fact was illustrated in the case of Padilla v. Kentucky, 130 S Ct. 1473 (2010).  Padilla, a long-time lawful permanent resident, was charged with a drug offense.  The Kentucky state court charged the defendant with the transportation of marijuana.  Assured by his attorney that his immigration status was secure due to the length of his residence, he accepted a plea bargain.  However, the mere acceptance of his plea bargain caused him to be deportable without the opportunity for relief.  After realizing the consequences of his plea, the defendant attempted to challenge his guilty plea citing ineffective counsel, but the Kentucky Supreme Court denied his challenge on the grounds that the Court did not view deportation as a direct consequence of his conviction and therefore outside the purview of the Sixth Amendment’s guarantee for “the effective assistance of competent counsel.”  The United States Supreme court disagreed with the ruling and overturned the lower state court’s decision.

The lesson to be learned from the Padilla v. Kentucky case is that attorneys representing noncitizens in felony class cases need to be knowledgeable of immigration law.  This understanding is even more pressing when plea agreements are being negotiated on behalf of the client.

As stated by Judge Stevens, addressing the Court, in the case of Padilla v. Kentucky:

Changes to our immigration law have dramatically raised the stakes of a noncitizen’s criminal conviction.  The importance of accurate legal advice for noncitizens accused of crimes has never been more important.  These changes confirm our view that, as a matter of federal law, deportation is an integral part—indeed, sometimes the most important part—of the penalty that may be imposed on noncitizen defendants who plead guilty to specified crimes.

The Supreme Court went on to rule that it is the duty of criminal defense attorneys to competently advise noncitizen clients when pending criminal charges may carry adverse immigration consequences and equally important, when deportation is certain.  By obtaining a qualified criminal defense attorney, the defense counsel may be able to construct a plea that minimizes the possibility for deportation.  In cases relating to undisclosed foreign source income or offshore accounts, noncitizens should look for an attorney competent in immigration law or associated with counsel competent in immigration law, as well as an attorney prepared to promptly discuss the consequences of a criminal conviction.

As previously discussed, an aggravated felony charge can results in an automatic deportation without the opportunity for a discretionary review by the immigration court.  Until recently, the immigration court determined whether a charge fit the definition of an aggravated felony by looking at the language of the statute under which the defendant was convicted.  Generally a categorical approach to review was taken foregoing examination of the underlying facts and circumstances of a conviction.  In the 2009 case of Nijhawan v. Holder, 129 S. Ct 2294, 2300, the United States Supreme Court seems to have changed this approach to an extent.  As the United States Supreme Court discussed whether a conviction for conspiracy to commit fraud was an aggravated felony as defined in 8 U.S.C. §1101(a)(43)(M)(i), it was determined that in order to come to a conclusion it was applicable to review the circumstances of the defendant’s crime to determine the amount of the victim’s loss.  Further, that while the amount of loss suffered by the victim(s) is a legitimate matter to be gleaned from the record of conviction; an actual figure of loss does not need to be included in the conviction.  As such, the immigration court should continue to conclude from the statutory language of the offense whether it included “fraud or deceit,” and then utilize the criminal proceeding records to calculate if the loss exceeded $10,000USD.

As previously discussed, tax evasion is the only tax crime specifically listed in 8 U.S.C. §1101 as being categorized as an “aggravated felony,” when the loss exceeds $10,000.  Among the various Supreme Court circuits, there has been debate as to whether congress meant to exclude other tax crimes from being categorized as “aggravated felonies” or merely wished to ensure that tax evasion is seen as an “aggravated felony.”  All previously mentioned criminal penalties include an element of fraud or deceit and thus at the discretion of the court could meet the first test as to whether or not the offense qualifies as an “aggravated felony.”  Tax offenses that can potentially be classified as fraudulent or deceitful are not limited to those that have been discussed.  As such, it is extremely important for defense attorney(s) representing noncitizen taxpayers to be mindful of the language of offenses being negotiated in a plea and when appropriate specify a tax loss that is less than $10,000 to ensure it does not later come into contention.


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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