Offshore Tax Evasion Remains on IRS “Dirty Dozen” List for 2017

In International Tax, Offshore Tax, OVDP by Jason FreemanLeave a Comment

Every year, the IRS compiles its “Dirty Dozen” list of tax scams/priorities—a list of tax enforcement priorities that the IRS and the Department of Justice work closely to address and, where appropriate, prosecute.  Not surprisingly, offshore tax evasion is once again among the agency’s top enforcement priorities.

Offshore tax evasion has been a high priority since the IRS’s rollout of the 2009 Offshore Voluntary Disclosure Program (“OVDP”).   Since the 2009 OVDP, there have been more than 55,800 disclosures of previously-unreported foreign accounts and the IRS has collected more than $9.9 billion related to such disclosures.  By any measure, the program has been a phenomenal success for the IRS, and it has allowed many taxpayers to avoid significant exposure to civil penalties and to avoid criminal prosecution.

In addition, another 48,000 taxpayers have come forward under a separate, streamlined procedure to correct prior non-willful omissions, paying approximately $450 million in taxes, interest and penalties in the process—and avoiding substantial penalty exposure in the process.

In conjunction with these programs, the IRS has also conducted thousands of offshore-related civil audits, resulting in tens of millions of dollars in unpaid taxes; it has also pursued criminal charges leading to billions in criminal fines and restitutions.  The government has been serious about the crackdown—and it remains serious.

As part of the Dirty Dozen rollout, IRS Commissioner John Koskinen reinforced the agency’s continued commitment to offshore tax enforcement: “Offshore compliance remains a top IRS priority. We’ve collected $10 billion in back taxes in recent years with 100,000 taxpayers making use of our voluntary disclosure programs.”  Commissioner Koskinen also hit on another continuing theme: “The IRS receives more foreign account information each year, making it harder to hide income offshore.”  The reality is that the government—through weapons like FATCA, the Swiss Bank Program, and a growing database of information and connections—is better armed than it has ever been.

A few snippets from The IRS’s recently issued “Dirty Dozen” reminder are set forth below:

Over the years, numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. Then access the funds using debit cards, credit cards or wire transfers. 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 bankers and others suspected of helping clients hide their assets overseas.

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  fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward to voluntarily 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.

The IRS went on to also remind taxpayers about the automatic third-party account reporting regime that is now entering its second year under the Foreign Account Tax Compliance Act (“FATCA”), and the U.S.’s network of intergovernmental agreements with partner jurisdictions that have helped make this program into a robust reporting regime that has dramatically increased transparency—and the risk of being discovered.  The Service added a reminder about the vast amounts of information coming out of the Department of Justice’s Swiss Bank Program, and the data mining that is currently taking place with respect to the information that has been obtained from foreign banks under that program.  The takeaway is clear: The government remains committee, perhaps now more than ever, to offshore tax enforcement.  And with programs like the OVDP and Streamlined Compliance Procedure being open-ended and subject to ending at any time, for many, the time to act may be now.

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