What's $5 Billion in Interest and Penalties on Foreign Accounts? A Good Start

August 17, 2012 (Press-News.org) The IRS's efforts to increase its collection of taxes on the foreign bank accounts of U.S. taxpayers still have some ways to go before they can claim an unqualified success. While they have collected $5 billion since 2009, the IRS estimates the yearly shortfall caused by this method of tax evasion is closer to $385 billion.

The Offshore Voluntary Disclosure Program

The offshore voluntary disclosure program was designed to allow taxpayers to voluntarily disclose any offshore banking assets and pay lesser penalties and interest, while avoiding criminal prosecution for failing to disclose their foreign assets.

The Pressure to Disclose will Increase

In January of 2013, the Foreign Account Tax Compliance Act (FATCA) becomes law. The Act requires that taxpayers with foreign savings, deposit, checking, and brokerage accounts exceeding the specified threshold report the assets to the IRS.

The assets will need to be disclosed on Form 8938 and filed with the taxpayer's annual tax return.

Attacking the issue from the other side of the bank account, this law will also require foreign banks to disclose information on U.S. customers. The prospect of this law has resulted in many Swiss banks requesting their account holders sign letters authorizing the disclosure.

Casting an Ever Wider Net

The IRS has become very aggressive in pursuing foreign banks. In 2009, the Swiss bank UBS settled a case with the IRS for three-quarters of a billion dollars to avoid criminal charges that its employees had assisted U.S. taxpayers with tax evasion.

In June of 2012, the Wall Street Journal reported that the IRS had indicted three Israeli-American tax preparers for helping U.S. taxpayers engage in tax evasion by setting up overseas corporations and bank accounts, in addition to falsifying their tax returns.

According to Bloomberg, IRS Commissioner Douglas Shulman stated, "We're going to crack down on people who are willfully hiding assets overseas and not meeting their obligations."

Do You Need to Plan for FATCA?

Given the fact that the IRS managed to recover less than 1.3 percent of the $385 billion lost every year to foreign asset tax evasion, the Service has a strong incentive to increase their aggressive enforcement activity.

The de facto end of Swiss bank secrecy laws and the increased enforcement tools under the FATCA means any taxpayer with foreign assets needs to discuss their accounts with a tax attorney. Taxpayers with foreign accounts need to be certain they either are not subject to the disclosure rules or have both complied with the existing rules and are prepared to comply with the new requirements.

Article provided by The Law Offices of Scott Kauffman
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