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Offshore Bank Accounts & Unreported Income Still High on IRS and Department of Justice Hit List

The Internal Revenue Service and the Department of Justice continue to place emphasis on unreported offshore accounts. In previous blogs, we have noted that the IRS and DOJ look at unreported offshore accounts as one of the dirty dozen of tax frauds.

There is nothing illegal in having offshore accounts or earning income in foreign countries. However, U.S. law requires citizens and residents who have signatory authority or control of offshore accounts in excess of $10,000 to report the accounts and account balances to the Treasury Department annually. In addition, income earned by U.S. citizens and residents anywhere in the world must be reported on income tax returns. Failure to file the treasury report identifying offshore accounts, as well as willfully failing to disclose offshore income, whether it be in the form of dividends, interest, sale of assets or salary, can result in prosecution for tax evasion or false statement on tax returns.

The government has, for several years, vigorously sought to penetrate the secrecy of offshore financial institutions to identify U.S. account holders. A recent example of Department of Justice and IRS action against foreign financial institutions is the settlement with HSBC Switzerland. The DOJ entered a deferred prosecution agreement with HSBC Swiss private banking division which resulted in HSBC paying $192,350,000 penalties.

The criminal investigation leading up to the settlement centered on HSBC's activities from 2000 to 2010, during which time the Swiss bank worked with its American clients to evade U.S. taxes and file false income tax returns. HSBC has, for an extended period, been cooperating with the IRS in identifying its U.S. customers and providing the banking records of those customers. The deferred prosecution agreement requires that the HSBC disclose information when discovered regarding U.S. accounts holders.

It has been our experience that financial institutions such as HSBC may come upon information that leads the institution to believe that their customer is a U.S. citizen or resident. HSBC will report to the IRS the identity of U.S. citizens who have signatory authority or control of the accounts. When the IRS gets this information, an audit will commence which may result in the assessment of additional taxes and civil penalties. The audit may also expand into an IRS criminal investigation, criminal prosecution, and a prison sentence.

In the past, the Internal Revenue Service utilized offshore voluntary disclosure programs that allowed U.S. taxpayers to self-report the offshore accounts and file amended income tax returns thereby avoiding criminal prosecution. The offshore voluntary disclosure program went through several different versions; however, the program is no longer in existence. There are, however, other ways to become compliant with IRS tax laws and avoid criminal prosecution.

We stand willing and able to assist our clients in dealing with the potential consequences of unreported offshore accounts and income. Our goal is to help clients become straight with the IRS so that the stress and fear of criminal prosecution can come to an end. To accomplish this goal, we seek to ensure that the client pays the correct amount of tax and avoids or lessens civil penalties. The major goal remains safeguarding our client’s liberty by avoiding a conviction for tax evasion, filing false income tax returns, failure to file income tax returns and failure to disclose offshore accounts.

Consultations to discuss these issues are confidential and we welcome the opportunity to meet with anyone who can benefit from our helping them through this problem. To contact us, dial (407) 901-5852 or complete an online consultation form here.

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