The questions keep rolling in. After a little research to ensure current information, the answers roll right back out. With many clients sending their tax information to me early this year, things are starting to get pretty busy. Time for researching is at a premium, so when help comes along from the IRS, it’s welcome.
The topic of a number of recent questions has been focusing on overseas bank accounts and the Foreign Account Tax Compliance Act (FATCA). Much consternation exists out there about the latter. Consternation that is misplaced, I might add. Too many inquiries express a misunderstanding of just to whom FATCA is directed.
True, FATCA will have some limited impact on your financial life, but only indirectly. FATCA is aimed at financial institutions, not the individual account owners, and is the wake-up call for foreign financial institutions to “get on board” the information sharing wagon.
FOR INDIVIDUALS, WE HAVE …
Appearing in my business email inbox this week was a well-written release by the IRS that sheds some light on this entire matter. Rather than parsing it out and paraphrasing as best as I can, I’ll just quote its contents right here so that all of you, dear readers, can see what’s up Uncle Sam’s sleeve.
Here, now, from the IRS Newswire, issue # IR-2016-17, is your weekly dose of “tax speak.”
Hiding Money or Income Offshore Resides on the “Dirty Dozen” List of Tax Scams for the 2016 Filing Season
WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.
“Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” said IRS Commissioner John Koskinen. “We have voluntary options to help taxpayers get their taxes and filing obligations in order.”
Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and we have collected more than $8 billion from this initiative alone. The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.
The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs. Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.
Through the years, offshore accounts have been used to lure taxpayers into scams and schemes.
Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes.
Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them.
Hiding Income Offshore
Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.
The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.
While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.
At the beginning of 2012, the IRS reopened following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.
Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and partner jurisdictions, automatic third-party account reporting began in 2015, making it less likely that offshore financial accounts will go unnoticed by the IRS.
In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.