by Brian Mahany
By now, anyone reading this blog knows how serious the government takes money laundering and unreported foreign accounts and offshore income. Last month, through some advanced notice of proposed rulemaking, the U.S. Treasury Department has set its sights on nominee accounts.
A nominee account is an account held in someone else’s name. Recently I visited a website with ads from several lawyers in Panama offering to open accounts on behalf of their clients. The client would own the money yet the account would be in the name of a foreign lawyer. If that sounds a little risky, it is.
Besides the risk of losing one’s money – and that risk is certainly high especially when the money is located in a foreign bank – there is also a risk of going to prison. Money laundering and failing to report a foreign brokerage or bank account is a felony. Until now, the government faced a tough time figuring out who really owns a bank account. That may soon change.
Before we examine the proposed rules, something more needs to be said about the risks of the Panamanian nominee accounts. As we wrote several days ago, an Alaskan plastic surgeon learned the hard way that his Panamanian banker was cooperating with the feds. Uncle Sam has 10 full time IRS agents in Panama now. Expats hoping to hide money there are facing an uphill battle.
On February 29th, the Financial Crimes Enforcement Network (FinCen) issued proposed rules requiring banks to identify the beneficial owner of an account. Once in effect, banks will have to perform some due diligence to determine who really owns an account.
FinCen can’t easily reach foreign banks but the larger Paris based Financial Action Task Force is debating a similar measure. In other words, Uncle Sam is getting other governments to partner in the same program to identify nominee owners.
Many times nominee owners are simply trusts or LLC’s. The new regulations would require banks to verify the individuals who exercise control over the funds in the account or who own 25% or more of the nominee entity.
More regulations. More compliance issues. And fewer places and ways to hide money.
If you are hiding money from the government offshore, the current IRS amnesty program, called the 2012 Offshore Voluntary Disclosure Program (“OVDI”), may be an attractive alternative. OVDI offers the ability to avoid criminal prosecution and audit. There are penalties but those are much lower than if the IRS finds your foreign account first.
Presently, the IRS can assess a penalty of 50% of the high account balance for each year an account wasn’t properly reported. (Foreign accounts are reported annually on a Report of Foreign Bank and Financial Account, often called an FBAR). Just 2 years of no reports and you could find yourself with nothing left.
Anytime you have questions about foreign tax reporting, talk to an attorney or CPA who concentrates in offshore tax issues. If you think your conduct may be criminal, speak to an attorney. Accountants don’t enjoy a strong privilege such as the attorney – client privilege.
The tax lawyers at Mahany & Ertl have helped many taxpayers with offshore tax issues: FBARs, the new FATCA law, foreign partnerships, OVDI, traditional voluntary disclosures and criminal tax investigations. For more information contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at All inquiries held in strict confidence.
Mahany & Ertl – Giving Taxpayers A Voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS tax services available worldwide.