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Undisclosed Foreign Accounts

April 3, 2020

Your Foreign Accounts are Concealed? Look Out for The IRS


Anyone keeping information about overseas assets from the U.S.government, whether intentional or unintentional, the news of Credit Suisse turning over names and account details of selected U.S. clients to the Internal Revenue Service might have been akin to a death knell.

During that time, the IRS, who was aggressively targeting taxpayers who have offshore assets and income to bring them back into the tax system, allowed for a number of windows of time for voluntary disclosure to lure taxpayers to confess. The final window closed on September 9, 2011.

Thereafter, folks with undisclosed foreign assets that missed out on the amnesty, became heavily reliant upon the advice of tax professionals.

“The advice to someone over in Switzerland is to run like hell for the nearest tax lawyer to discuss whether it makes sense to do a voluntary disclosure,” said Dennis Brager, a Los Angeles tax attorney with Brager Tax Law Group, who specializes in tax controversies.

People who are required to step forward include U.S. taxpayers who hold numbered accounts in Switzerland, people who reside overseas (which includes retirees), and immigrants who continue to sustain financial lives in their home countries.

Although the amnesty window had closed, some taxpayers with undisclosed foreign assets might still be eligible to file a traditional voluntary disclosure so as to avoid possible criminal prosecution, Brager explained.

There are key distinctions between the specific voluntary disclosure programs and a more traditional voluntary disclosure. First off, the specific voluntary disclosure programs laid out the details of the possible penalties.

“Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution,” the IRS warned.

According to the IRS, If you are convicted of tax evasion, you could face up to five years in jail.

Credit Suisse Action

Credit Suisse, Switzerland’s second-largest bank, started notifying clients who might fit the description of offshore tax evasion that it was preparing to give their names and account details over to the IRS, in conjunction with Swiss tax authorities.

The move came right after a formal request that had come shortly before for the information from the IRS.

This campaign to corale tax evaders came with the U.S. government’s crusade at that time to balance the budget and cut the deficit. Lowering the tax gap — the difference between the tax dollars owed and the amount collected from taxpayers — is one of the few relatively easy ways to bring in more revenues.

Taxpayers that voluntarily confessed their failure to report foreign bank assets on the FBAR (Foreign Bank Account Report) within a program that gave them the opportunity during that time were charged 25% of the highest aggregate balance between 2003 and 2010.

This FBAR filing is required for all U.S. citizens with a minimum $10,000 in a foreign financial account.

Steep Penalties

Nonetheless, the penalties are far greater if the IRS discovers that you neglected to file an FBAR, especially if your violation is found to have been “willful.”

In such cases, the fees could tick up as high as 50% of the total balance in the accounts, or $100,000 for relatively smaller accounts, according to Baker Tilly, an international tax and accounting firm. In other words, if you kept the IRS in the dark about the $2 million you have stashed in an overseas account, you might bid farewell to $1 million of your money.

During the two amnesty periods in 2009 and 2011, a whopping 30,000 taxpayers stepped forward. The IRS reported that it had rounded up a total of $2.2 billion from taxpayers who participated in the 2009 program, and another $500 million by November 2011, not including penalties, from people who passed through the 2011 windows.

For U.S. persons who still have unpaid taxes on significant offshore assets, attempting to hide assets overseas from American tax authorities became increasingly ineffective.

Tax lawyer Brager warns his clients thusly: “I keep telling clients the same thing, ‘I don’t know if you’re going to get caught, or how you’re going to caught, but if you do, you’re not going to like what happens next.'”



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