Undisclosed foreign accounts? The IRS is coming

NEW YORK Wed Nov 9, 2011 12:18pm EST

Women walk out of an Internal Revenue Service office in New York April 18, 2011. REUTERS/Lucas Jackson

Women walk out of an Internal Revenue Service office in New York April 18, 2011.

Credit: Reuters/Lucas Jackson

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NEW YORK (Reuters) - For those who have been hiding assets overseas from U.S. tax authorities, knowingly or not, the news that Credit Suisse will turn over names and account details of certain U.S. clients to the Internal Revenue Service could be the beginning of the end.

The IRS, aggressively seeking to bring taxpayers with offshore assets and income back into the tax system, offered several rounds of voluntary disclosure windows to induce taxpayers to confess. The last window closed on September 9.

Now those with undisclosed foreign assets, who did not take advantage of the amnesty, should seek tax advice immediately.

"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," says Dennis Brager, a Los Angeles tax attorney with Brager Tax Law Group, who specializes in tax controversies.

Those who need to come forward include U.S. taxpayers with numbered accounts in Switzerland, Americans living overseas, including retirees, and immigrants in the United States who have maintained financial lives overseas.

Though the window has closed, taxpayers with undisclosed foreign assets may still be able to file a traditional voluntary disclosure that would allow them to avoid potential criminal prosecution, Brager says.

There are important differences between the specific voluntary disclosure programs and a more traditional voluntary disclosure. For one, the specific voluntary disclosure programs spelled out 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 notes.

A person convicted of tax evasion may face up to five years in jail, according to the IRS.


Credit Suisse, Switzerland's second-largest bank, began notifying clients suspected of offshore tax evasion that it intends to turn over their names and account details to the IRS, with the help of Swiss tax authorities.

(For details, please click here)

The move follows a recent formal request for the information from the IRS, according a copy of the letter obtained by Reuters.

The effort to round up tax evaders comes as the U.S. government is trying to balance the budget and cut the deficit. Decreasing the tax gap -- the difference between the amount of tax owed and the amount actually paid by taxpayers -- is one of the few relatively easy ways to bring in more revenues.

Those who voluntarily disclosed their failure to report foreign bank accounts on the FBAR, or foreign bank account reporting form, during the latest program, generally owed 25 percent of the highest aggregate balance between 2003 and 2010.

The FBAR filing is required for any U.S. citizen with at least $10,000 in a foreign financial account.


But the penalties are far more severe if the IRS finds you did not file an FBAR, especially if the violation is categorized as "willful."

In that case, the monetary penalties may run up to 50 percent of the amount in the accounts, or $100,000 for smaller accounts, according to Baker Tilly, an international tax and accounting firm. That means, if you never told the IRS about the $2 million stashed overseas, you might say goodbye to $1 million of it.

Between the two amnesty efforts in 2009 and 2011, some 30,000 taxpayers have come forward. The IRS announced that it had collected a total of $2.2 billion from people who participated in the 2009 program, and an additional $500 million so far (a number that does not yet include penalties) from those who participated in the 2011 effort.

For U.S. citizens who have not paid taxes on substantial offshore assets, the hope of hiding from tax authorities seems increasingly unlikely.

Says tax lawyer Brager: "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.'"

(For a related story on the final reporting deadline, please click: here)

The author is a Reuters contributor. Opinions expressed are her own.

(Editing by Beth Gladstone, Lauren Young and Chelsea Emery)

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Comments (1)
cafreeb wrote:
Thank you for writing about this. The majority of us caught up in this mess in Canada did not owe a dime in taxes due to the agreement the U.S. has with Canada and they knew that when they passed this “Hire” legislation. Our situation has been totally misrepresented in the U.S. press for the most part. I am seeing some completely misguided comments about this situation. First of all most people who are Americans living in Canada are here because they married a Canadian, over fifty percent. In my case, my Canadian spouses parents were elderly and ill. At the time I came here I certainly did not do so because I wanted to “leave” the United States. I did so because it was morally wrong for me to ask my spouse to move thousands of miles away from his elderly parents. I have been a stay at home mom to a disabled Canadian child. My Canadian spouse makes every red cent of our income at his Canadian job in Canada. Now the IRS is telling me about these FBAR papers and the huge penalties on them. I did not get in under the deadline as I did not even know about it.

There have been five deaths in my family in the last year and I myself was hospitalized twice. I called the IRS in April of 2011 after my mother died to inquire about my obligations with regard to any money she was leaving me. I spoke with them for half an hour and at no time did they mention FBAR to me! They confirmed that I had not made enough income in previous years to be required to file as they had told me every other time I called them. I made sure in all the years I lived in Canada to periodically give them a call so as to be informed of any changes to my obligations. NOW I am told, about FBAR. Many accountants here and tax attorney’s did not ever mention FBAR either.

The Untied States has made these fines on people who did not owe any tax and it’s harming the middle class and poor a LOT more than the big fish criminals they say they are going after.

When FATCA comes into play we must report every account our name is on even if we didn’t make a red cent in the account. This has the effect of us reporting our foreign spouses and children to the IRS. Many of them of course object to this. For instance in Canada we have something called an RESP. It is a savings account for your child’s education. In Canada it is tax deferred but, in the U.S. it is not. So if a Canadian child has one American parent on the RESP account it will have to be reported and taxed effectively making the U.S. dip into our foreign children’s education funds.

The FBAR penalties are the most worrisome though as they are imposed whether or not you owed any taxes. The Toronto embassy recently held a “group” renouncing with another one planned. These people do not really want to renounce and love their country of birth but, they are forced economically to choose between their foreign spouse and children or their country. This law is heinous. It needs to be amended so people off shoring funds, drug lords, and criminals are punished while not treating law abiding innocent families the exact same way they are treating these criminals. Canada is no tax haven, no one moves here to escape high taxes.

This “Hire” legislation is ham fisted and is harming people in some ways that are not able to be justified or repaired. Shame of Carl Levin, and anyone associated with passing this. Go after the real “tax cheats” and stop abusing your power against middle class and retired ex pats in places like Canada who you know full well owed you zero in taxes. FBAR penalties should be repealed and FATCA needs complete reworking. Most tax cheats who “off shore” actually live IN the U.S.

Our checking accounts where we live, the same as those who have a checking account because they live in the U.S. near them are not “off shoring” Carl Levin and the rest of you who wrote this shame on you for putting these citizens in this position. Shame.

Nov 14, 2011 1:01pm EST  --  Report as abuse
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