[Post updated June 2019] I feel like a broken record lately about the current IRS offshore tax amnesty (called the Offshore Voluntary Disclosure Initiative). I keep writing about it because people keep calling with questions. Invariably, we are asked “will I get caught if I don’t report?” There is no easy answer to that. Surprisingly more than half the people we speak to ultimately choose to take that risk. Today’s news from Business Week may change your mind.
[Ed note – In the interest of full disclosure, I am a featured blogger on Business Week’s Business Exchange.]
So are there new developments in government’s war on unreported offshore assets? Apparently plenty. According to a story by David Voreacos in Businessweek, “more than 100 federal prosecutors are pressing the taxpayers to cough up details about who helped them set up their accounts, how they moved their money, and where they met their advisers, according to two people involved in the probe who aren’t authorized to speak about the matter. People who don’t cooperate could be prosecuted for their tax crimes. IRS spokesman Dean Patterson didn’t respond to questions about the investigation.”
If the reports are true, the current crackdown would be unprecedented. 100 Department of Justice trial attorneys and assistant United States Attorneys could put a big dent in the thousands of people who have not reported their foreign holdings. Armed with “John Doe” subpoenas and backed by tax exchange agreements with most nations, its just a matter of time before many or most get caught.
How many years back will the feds look? What will be the dollar threshold before the feds take action? Will the IRS give any relief to those who make quiet disclosures after amnesty closes on August 31st? Those are all unanswered question
For those who may be reading this blog for the first time, most offshore bank and financial accounts that hold or once held $10,000 or more need to reported annually on a Report of Foreign Bank and Financial Account (or FBAR). This is true even if you reported the income from those accounts on your tax return. The penalty for noncompliance is prison and loss of 50% of the highest historic account value. While the chances of criminal prosecution and prison are low, the IRS will take your money.
Offshore accounts are completely legal if properly reported. For those not in compliance, there is a special amnesty that runs through August 31st. Complete the process and you avoid jail and face reduced penalties of 5, 12.5 or 25%. [Update, the formal amnesty program offered by the IRS ended in September 2018. Since the amnesty plans were first offered, 56,000 taxpayers came forward and the government collected $11.1 billion.]
A streamlined compliance filing procedure is still available although the IRS says it could pull the plug at any time. An additional 65,000 taxpayers have come forward under that program.
The process is time consuming so don’t wait until the last minute. Plan at least 30 days if not more. Do you need a lawyer? No but it is highly recommended. Unless you have other tax problems or complications, our legal fees are $10,000 for each amnesty application.
The IRS is serious about cracking down on unreported offshore accounts and income. Many of the people with foreign accounts are foreign born Americans or dual nationals. We have found that many such people do not even know they are required to disclose their offshore accounts. Even many accountants are confused.
Update 2019: We stopped doing most tax work in 2016. Now most of our tax work is limited to the IRS Whistleblower Program and helping people obtain cash rewards. Unreported foreign accounts are still a hot topic with the IRS. And that means plenty of whistleblower reward opportunities.
Under the IRS Whistleblower Program, the Service pays qualifying whistleblowers between 15 and 30 percent of the proceeds it collects from the wrongdoer. However, until 2018 the IRS did not pay whistleblowers for information that led to the collection of FBAR penalties. The IRS interpreted the existing law to mean that such penalties were excluded from whistleblower awards.
In February 2018, Congress passed legislation that requires the Internal Revenue Service to include penalties for violations in the Report of Foreign Bank and Financial Accounts (FBAR) in calculations for whistleblower awards. [Before this some tax court judges said FBAR penalties were not tax penalties even though the IRS enforces and administers the FBAR program for FinCEN, a different Treasury Department agency.]
The General Accounting Office found that there were more than 130 whistleblower claims closed between January 2012 and July, 2017 with FBAR penalties totaling some $10.7 million assessed in 28 of the cases. It was unknown if the whistleblower’s information let the IRS to take action in all the cases.
If the penalties in those cases had been included in the whistleblower awards, it could have meant awards up to $3.2 million for the informants. Over 97 percent of the FBAR penalties collected from the 28 claims came from just 10 cases with willful FBAR noncompliance, which carried higher penalties. Remember, until February 2018, the IRS often didn’t include the penalties in reward computations.
There is still plenty to be done.
For one thing, the IRS still doesn’t embrace whistleblowers. The SEC, CFTC and Justice Department, embraces whistleblowers but the IRS seems to merely tolerate them. Of course, there are many dedicated IRS revenue agents, revenue officers and special agents who appreciate whistleblowers.
The IRS’ own taxpayer advocate reported that in fiscal year 2017, the agency paid $20 million to private collection agencies. That effort brought in just $6.7 million. Yet the agency still has over 15,000 whistleblower tips pending involving billions of dollars.
To learn more about collecting an IRS whistleblower reward, visit our tax fraud whistleblower page. Ready to see if you qualify for a reward? Contact us online by email or by phone at 202-800-9791. Whistleblower cases accepted worldwide.