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Dragnet tightening on offshore accounts

The flow of tax information between countries used to be very limited. In recent years, the Foreign Account Tax Compliance Act and the tax information sharing agreements have opened the tap resulting in a torrent of data crossing borders.

For anyone who still holds investments offshore in layered entities like trusts or foundations the odds of an IRS investigation are increasing. Since the crackdown on offshore accounts in 2009, the Wall Street Journal reports that 55,800 people have paid approximately $9.9 billion to resolve past missteps.

Combing through the data

Extensive bank data from Switzerland to Hong Kong is being mined by IRS agents to identify those who have failed to pay U.S. taxes. A comment by an IRS official at a conference last month indicates the scope. Results of the analysis are the initiation of:

  • 100 potential criminal cases
  • 14,000 potential civil cases

For almost 10 years there has been increased publicity about the obligation of U.S. persons to pay tax on worldwide income. This means that for those caught in the recent dragnet, ignorance of the law is probably not a viable defense strategy.

And courts are starting to hand down prison sentences. Seven people have been sentenced to prison for hiding money in offshore accounts over the last year. A retired professor and a plastic surgeon whose divorce likely triggered issues were among them.

Experienced legal help

If you receive a notice or have any other indication that the IRS has started an investigation, the first thing is not to panic. But do take prompt action to mitigate the potential consequences.

Each case is different and an experienced tax attorney can provide individualized counsel and develop a tailored strategy to resolve the offshore-related tax problems.

For the millions of Americans who live abroad and have not complied with the complicated foreign accounts rules it also important to get sound legal advice. A Streamlined Filing Compliance program is available that might offer help. Actually 48,000 taxpayers have used this program paying $450 million to sort out their tax issues. Take care when determining how to come back into compliance, however, because the IRS carefully scrutinizes this list looking for those who might not qualify for this program, but are trying to use it anyway. 

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