IRS Searches For Offshore Bank Accounts, Issues Penalties

The Wall Street Journal recently released a report on a new tactic being implemented by the Internal Revenue Service, or IRS, to track down foreign account holders that violate the law. The tactic involves contacting a Wells Fargo & Co. bank that maintained an account for a Barbados-based bank, FirstCaribbean International Bank. FirstCaribbean used the account at Wells Fargo to wire money into other accounts throughout the United States. The IRS is attempting to determine who held FirstCaribbean accounts by following the money trail. Hefty tax penalties and potential imprisonment could result for individuals who are found to have held undisclosed accounts with this foreign bank.

This latest report comes shortly after a finding that the IRS expanded efforts locating offshore accounts into Australia and the United Kingdom. Why are these moves by the IRS significant? In the past, the IRS has focused criminal tax prosecution efforts on accounts located in Switzerland. These new efforts show that the IRS is expanding its search to accounts held throughout the world.

Penalties Associated With Offshore Accounts

The IRS is expanding efforts to pursue international tax evaders. Officials with the IRS note that taxpayers are not barred from holding accounts outside of the United States. They are, however, required to pay taxes associated with those accounts. Anyone who uses the accounts as way to avoid taxes is in violation of federal law.

In an attempt to provide taxpayers an opportunity to disclose offshore accounts and avoid potential criminal prosecution, the IRS developed an Offshore Voluntary Disclosure Program. The program initially had an expiration date, but has been extended indefinitely. It enables taxpayers to resolve any tax liability and reduce the risk of criminal prosecution. According to the IRS, it will “not recommend criminal prosecution to the Department of Justice” if a taxpayer “truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice.”

Not filing can result in an array of penalties, including:

• Failure to file the Report of Foreign Bank and Financial Accounts, or FBAR, for foreign accounts exceeding $10,000 can lead to a $10,000 penalty for each violation.
• Failure to file Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts can lead to $10,000 or 35 percent of the gross reportable amount, whichever is larger.
• Failure to file Information Return of Foreign Trust with a U.S. Owner can lead to $10,000 fine or 5 percent of the gross value of the trust asset, whichever is larger. This applies with any ownership interest in a foreign trust.

If the IRS discovers a foreign account that was not reported, criminal charges may ensue. These charges can include tax evasion, filing a false return and failure to file an income tax return. A tax evasion conviction can lead to a $250,000 monetary fine and up to three years imprisonment.

If you or a loved one is charged with tax evasion, contact an experienced criminal tax attorney to discuss your legal options.