Due Diligence

by Brian Mahany

Meet Bradley Birkenfeld. Bradley is a disgraced former Swiss banker that spent about 2 and a 1/2 years in prison for helping Americans evade taxes and hide their money in Swiss accounts.  He is out of jail now and is getting a check from Uncle Sam  for $104 million. What did he do to earn that kind of money? He reported on his former clients and turned over their names to the IRS.

By my quick calculation, Birkenfeld earned about $4900 per hour while in prison.  Even while sleeping.  Whether or not you think convicted felons should received millions of dollars in taxpayer money, this week’s award sends a very clear message. The IRS is very serious about ferreting out taxpayers with unreported accounts. With an award that size, bankers in every country in the world are considering tonight whether they should turn over your name to the IRS.

The IRS’ whistleblower problem is designed to encourage people to report tax fraud. By paying cash to people who come forward (the IRS does withhold, however), the government hopes that the monetary incentive is enough to overcome the hassle that comes from being a whistleblower. Forget about hassle, getting paid over a $100 million dollars is enough money to cause many people to turn in their own mother.

Birkenfeld’s award simply gives foreign bankers 104,000,000 reasons why they should just cut a deal with the IRS and turn in clients with unreported accounts. As we have learned, however, most people with unreported accounts simply don’t understand the complex foreign reporting requirements found in the tax code.

In its simplest terms, federal law requires U.S. taxpayers (that includes dual nationals, Americans living abroad and green card holders) to notify the government if they have $10,000 or more in foreign bank or brokerage accounts. Dividends, interest and capital gains get reported on one’s income tax returns just like if the account was in the United States. The account itself is reported on an annual Report of Foreign Bank and Financial Accounts or “FBAR.”

This year, individuals meeting certain income thresholds were also required to file a FATCA form.

Owning the account is completely legal as long as reported.

Failing to properly report the account could result in penalties of $100,000 per year or 50% of the account’s highest balance for each the account was unreported. Willful violators also face prison.

The IRS is offering an amnesty plan for people have not properly reported. If you knew about the law and just ignored it hoping you would not get caught, the amnesty program is the best deal in town. (For more information about the program, called the Offshore Voluntary Disclosure Program, just type “OVDI” in our blog search engine located in the upper right corner of your screen. We have over 2 dozen helpful articles on the program elsewhere on this site.)

Non resident taxpayers, people who can prove their actions were not willful and folks with small accounts may do better outside of amnesty. Finding a qualified tax lawyer to walk you through the choices is your best bet. Whatever you decide, do not ignore the problem. With the IRS publicly paying convicted felons tens of millions for the names of foreign account holders, do not expect your identity to remain private for long.

Why does this matter?

The IRS operates on a first contact policy basis. If they find you first, all bets are off and you are not eligible for the amnesty programs.

The tax lawyers at Mahany & Ertl have helped many U.S. taxpayers, dual nationals and foreign born Americans navigate the complex sea of offshore tax regulations. We will gladly explain your options without charge and with the security of knowing that all inquiries are covered by the attorney – client privilege.

For more information, contact attorney Bethany Kroes at (414) 223-0464 or by email at bckroes@mahanyertl.com.

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California (tax only). Services provided anywhere in the U.S. and beyond.