Offshore Tax Evasion: How IRS Finds Your Offshore Money
Offshore Tax Evasion
Offshore Tax Evasion: The IRS has significantly increased enforcement of offshore tax and reporting related matters. When a U.S. taxpayer fails to disclose foreign income, accounts, assets, and investments to the U.S. government, it may lead to significant offshore fines and penalties. Of course — and despite rampant online fear-mongering — not every international tax violation amounts to tax evasion. In fact, most tax violations are merely negligent mistakes that do not put the taxpayer at any risk for criminal enforcement.
If the Internal Revenue Service believes that the offshore violation was willful and/or intentional, it may lead to a criminal investigation by the IRS Special Agents, which could lead to an indictment for tax evasion.
As with most tax violations, the most pressing concern for taxpayers willing to jump into the shark tank and risk their freedom is simply:
“How does the IRS find and investigate me?”
While it may seem difficult to conceptualize how the Internal Revenue Service can locate a secret “number account” at a Swiss Bank, or a corporate account held in Malta or Jersey — it is nowhere near as hard as you may think.
While some FFIs may first send the account holder a KYC (Know Your Customer) or FATCA letter before reporting to the IRS, not all institutions do so.
If the institution believes that the customer is a U.S. person, they may report the information to the IRS without even telling the customer. As such, some taxpayers may not even know if the FFI has already reported them to the IRS.
If the IRS deems the account holders’ noncompliance as willful, then it may lead to an evasion investigation.
International Wire Transfer
You have to get that foreign back into the U.S. somehow, right?
Let’s say you’ve successfully hidden some money overseas.
You outwitted the U.S. government and avoided detection under FATCA or FBAR. The problem now is that now you want to get that money back to the US, since that new Ferrari you’ve been eyeing isn’t going to pay for itself.
If you directly transfer the money to the U.S., you are risking the bank notifying the government of the large transfer (or multiple small transfers). If instead you decide to deposit just a little bit of money at a time you may be setting yourself up for a structuring or smurfing violation.
The same goes for withdrawing the money in check form and then depositing the check it into a bank account in the U.S. – which may put the IRS directly on your trail.
SAR (Suspicious Activity Reports)
3rd Party Voluntary Disclosure
Suddenly their business hits it big and the cash flows in. Taxpayers decide that they are going to forego the hassle of filing U.S. tax returns.
Taxpayer 1 is out enjoying the single life, but Taxpayer 2 has now settled down with a spouse and some kids. Taxpayer 2’s foreign spouse wants to chase the American dream and thinks it would be wonderful for their children to be raised in America.
While Taxpayer 2 has not filed taxes for several years — he was fully aware that he was required to file taxes.
Taxpayer 2 decides to enter the traditional voluntary disclosure program (Streamline Disclosure would not be an option since taxpayer two was willful).
As part of the voluntary disclosure, Taxpayer 2 must summarize the fraud for the IRS, as well as file past FBAR, 8938 and 5471.
A year later, as Taxpayer 1 nurses a hangover on the deck of his beachfront condo, he gets a call from his sister in the U.S. about a summons received at her US property, which he lists as his current address.
Under Duress for other Charges
Despite that agreement you and your buddies made “no snitching” once one member of the group is facing 20-years in prison, reality sets in and they will almost always jump at any chance to reduce their sentence —
We Specialize in International Tax & Offshore Compliance
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Interested in Learning More about our Firm?
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.</span