by Brian Mahany
Carl Levin, the senator from Michigan, has done more to combat perceived “offshore tax abuses” than any other member of Congress. This week he convinced the U.S. Senate to amend a highway bill to crack down on offshore tax havens. If passed and signed into law by President Obama, the law will give new tools to the IRS.
Legislators frequently tack amendments on to popular legislation. Although unreported Indian bank accounts have noting to do with rebuilding bridges and interstate highways, routine highway funding bills are easier to pass than stand alone tax legislation.
The amendment allows the IRS and Treasury to take action against foreign governments and offshore banks that don’t cooperate with U.S. officials. In this case, “cooperate” means identify and turn over the names of U.S. taxpayers with offshore accounts. Taxpayers with foreign financial accounts (bank or brokerage) have been required to report those accounts for many years. (Individuals and businesses are required to file annual Reports of Foreign Bank and Financial Accounts also known as “FBARs.”)
Enforcement of these foreign reporting requirements, however, has been spotty. The IRS doesn’t have easy access to the names of account holders in overseas banks and many taxpayers simply are ignorant of the law. Many dual nationals and foreign born Americans tell us they simply didn’t know they had to tell Uncle Sam about their foreign account until they received an audit notice.
Levin’s amendment will allow the government to block wire transfers or prevent the use of credit cards from banks that don’t cooperate.
Some worry that the new law will hamper tourism at a time when America needs all the revenue it can generate. How will it hurt tourism? Industry officials worry what could happen if a vacationer from another country travels to the U.S. only to learn his credit card won’t work here because the IRS and his bank are at odds.
In the last 3 years the world has become much smaller. Foreign bank accounts aren’t illegal but not reporting the account or income is. Fines and penalties include up to 5 years in prison and a civil penalty of 50% of the high account balance for each year the account was unreported. Coupled with the new Foreign Account Tax Compliance Act (FATCA), John Doe subpoenas and an unprecedented level of international cooperation, the stakes have never been higher.
There is hope, however. The IRS operates on a first contact policy. If you come forward before they find you, criminal prosecution can be avoided and penalties significantly reduced. There is a tax amnesty program called the Offshore Voluntary Disclosure Program (often called OVDI or OVDP) that reduces the monetary penalties significantly and in most cases, avoids audits. There are also opt out and traditional voluntary disclosure programs that may be the better deal IF you can demonstrate that your failure to file FBARs and report your account was not willful.
Whatever you decide, don’t wait too long. As stated above, all bets are off if the IRS finds you first. That means if you are reading this and have unreported accounts in Switzerland, Lichtenstein, India or the Cayman Islands you should see a tax lawyer with offshore reporting experience immediately. Know your options!
The tax lawyers at Mahany & Ertl concentrate in helping people and businesses with foreign tax reporting issues. FATCA, FBARs, opt outs and amnesty – we can help. For more information contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at All inquiries are confidential.
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