by Brian Mahany
A group of journalists at WNBC in New York City decided to see how hard it would be to create their own offshore shell company. The answer is a few minutes on the phone and $1000. Their story can be found here.
What we find fascinating is the misinformation provided by some of the offshore promoters contacted by WNBC. In several taped conversations, the promoters were openly telling the journalists that these shell companies could be used to hide income and money from the IRS.
“Are you basically saying I can shelter my money from U.S. taxes?”, asked a reporter.
The response was, “Basically yes.”
Unfortunately, many Americans get stung each year by the slick sales pitches and websites offered by these promoters. Some never get caught but others lose everything and go to prison for felony tax evasion.
Opening a bank account in a foreign country is completely legal as long as the account is reported annually to Uncle Sam. Foreign bank, brokerage and retirement accounts are reported on a Report of Foreign Bank and Financial Accounts form also known as an FBAR. This year, some taxpayers were also required to file a FATCA form as well.
Things get sticky when U.S. taxpayers fail to register their foreign account or worse, use an offshore shell company to deliberately shelter their income from the IRS. A shell company is nothing more than an entity created in another name to hold an asset. Often promoters will sell these companies in tax havens and secrecy jurisdictions that allow companies to be opened with nothing more than a foreign post office box. Frequently, promoters will supply “straw men” or nominees to sign paperwork in their own name making it even more difficult to identify the true owner.
On paper, these schemes seem bullet proof but in the real world, Americans who try them get indicted daily.
How does the IRS find out? There are many ways. Wire and check transfers can be tracked by the government. Short of flying out of the country with a suitcase full of cash, there is a paper trail whenever money is transferred. The IRS also pays whistleblowers for information. The former UBS banker who cooperated with the IRS was recently paid $104 million for his information!
Recently, the Justice Department began indicting offshore bankers for their role in helping Americans hide money from the government. One promoter in Belize told a WNBC reporter that if asked for information by the IRS he would not cooperate. That sounds great but when faced with a 20 year prison term, our money is on the government. Many bankers and promoters sell out their clients in return for a reduced sentence.
No one wants to pay taxes. Because of that, we want to believe someone who tells us they can “legally” help us avoid taxes. Their information is almost always false. Most courts have adopted a willful blindness standard meaning you can’t defend yourself by saying that you relied on an offshore promoter for tax advice. As the old adage says, if it sounds too good to be true, it probably is.
If you have listened to one of these promoters and have unreported foreign accounts or income, there is hope. Presently the IRS is offering an amnesty program called the Offshore Voluntary Disclosure Program or “OVDI.” For a one time penalty, taxpayers can avoid prison, audit and huge monetary penalties that can be as high as $100,000 or 50% of the highest account balance for each year an account is not reported.
Of course, many of our clients simply had no idea that foreign accounts had to be registered. For “low risk” taxpayers, a traditional disclosure or opt out may be the better way to go.In some instances all penalties can be avoided.
Offshore tax reporting is complex. If you are not currently in compliance, contact us immediately. We can help you decide what option is best for you. All inquiries are kept strictly confidential and protected by the attorney – client privilege. Even if you don’t hire us we will can keep your identity safe (unlike the promises of some promoters).
The IRS’ OVDI tax amnesty operates on a first contact basis. If the IRS finds you first then you don’t qualify. Expect an audit, high penalties and if the IRS finds you have been using a nominee or offshore shell company, expect a felony indictment. The clock is ticking.
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. Already under criminal investigation or indictment? Contact the author, attorney Brian Mahany at or by telephone at (414) 704-6731 (direct).
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and San Francisco, California (tax only). IRS legal services available nationwide and worldwide.