by Brian Mahany
In recent weeks we reported the prosecution of two foreign born Americans with unreported bank accounts in India. The IRS and Justice Department prosecuted Vaibhave Dahake and Josephine Bhasin for failing to file required Reports of Foreign Bank and Financial Accounts, more commonly called FBAR’s. Failing to disclose an offshore account is a felony and carries an additional civil penalty of 50% of the highest balance in the account.
Since reporting those prosecutions, the feds have filed court documents indicating that some 9000 people have unreported accounts at HSBC India. HSBC now says it will cooperate with the feds. What does that mean? If you are one of those 9000 people, big trouble.
The IRS is not just looking at Americans with accounts in HSBC or India. Besides the well publicized cases involving Swiss accounts at UBS and Credit Suisse, the IRS is looking everywhere. Americans with accounts in other countries or at Indian banks other than HSBC should not think they are safe.
HSBC, although a big bank internationally, is not the biggest in the Indian market. The State Bank of India (SBI), ICICI Bank, Punjab National Bank and HDFC Bank are all likely targets too.
The irony in these cases is that court filings repeated demonstrate that until a few years ago, many banks actively solicited Americans to open foreign accounts and promised secrecy. Now that world opinion has changed and the industrialized nations are united in the pursuit of unreported income, these same banks are now cooperating with the feds. Sign up the client one year and throw them under the bus in the next seems to be the current playbook.
Foreign accounts are 100% legal and there are many reasons to keep money offshore. Some overly aggressive bankers suggested that taxpayers could avoid taxes by moving their money, however. And in other cases, foreign born Americans and dual nationals simply don’t understand their reporting obligations. Even if the account pays no interest or dividend – and thus generates no taxable income – foreign accounts must still be disclosed to the IRS.
The IRS is running a last chance amnesty through August. Although the last two amnesty programs were considered “last chance”, the heat has really been turned up and the amnesty penalties are also increasing. This may well be the last amnesty for quite some time.
Taking advantage of the IRS amnesty, called the Offshore Voluntary Disclosure Initiative, means a walk on criminal prosecution and reduced penalties. Instead of the 50% loss of the high account balance, successful amnesty participants will qualify for a reduced 5, 12.5 or 25% penalty. That is still steep – so steep that many taxpayers will likely continue to play audit roulette and hope they don’t get caught.
More than ever, we recommend that those with unreported foreign accounts come forward and take advantage of the program. The feds have never been more serious or prepared than they are now. Simply closing the account and withdrawing the money doesn’t make the problem go away either – the law allows the feds to go back years and years.
If you have a tax problem – including unreported foreign income or offshore accounts – call us. We can help with a wide range of tax problems including amnesty applications, U.S. tax court litigation, collections, audit defense, welfare benefit plans and criminal tax defense (failure to file returns, evasion, etc.). We help people with tax problems anywhere in the U.S.
For a confidential, no obligation consultation, contact Brian Mahany at (414) 704-6731 (direct) or at