by Brian Mahany
The U.S. government is getting quite sophisticated in its hunt for unreported foreign accounts and those they believe are laundering money. While most people who haven’t reported their offshore bank and brokerage accounts don’t have a clue about the disclosure rules, some do. The people who have decided not to cooperate with the IRS often open accounts under the name of a foreign corporation and have statements sent to an address outside the United States. For many years, that sort of activity worked but times are rapidly changing.
The penalties for willfully failing to disclose an offshore account include 5 years prison and huge monetary penalties – often $100,000 per year or more. Most foreign financial accounts must be disclosed annually by filing a Report of Foreign Bank and Financial Account, more commonly called an “FBAR.” For many taxpayers, the spectre of losing all their money and a long stay in prison is enough to force them into compliance. Others, however, continue to hold out.
FinCEN, Treasury’s Financial Crimes Enforcement Network, has proposed new rules requiring banks to determine the beneficial owners of nominee accounts. While FinCEN only has authority of U.S. financial institutions, some banking groups worry that the government will use its new FATCA law to require foreign banks to also comply.
Under the proposed regs, banks would be required to investigate and determine the beneficial ownership of accounts within their bank. Some experts believe that multi-tiered and foreign corporate ownership would make the task impossible for banks. Unfortunately under that scenario no one wins; banking fees would increase and the sophisticated tax dodgers might never be caught.
We believe that the proposed regulations are not well thought out and not likely to pass. At least not in their current form. World political pressure from the governments worldwide are forcing more transparency, however. Sooner or later banks and regulators will develop a better method of determining who controls bank accounts opened in third party names.
One of the most effective tools in the government’s arsenal are indictments aimed at bankers, lawyers and other gate keepers. Frequently these people are the first to cooperate and turn over the identities of their clients.
If you have an unreported account and think you are safe from prosecution, think again. The chances of getting caught increase everyday. Currently the IRS is running an amnesty program called the Offshore Voluntary Disclosure Program or “OVDI.” Although the penalties are a bit steep, the voluntary disclosure program involves no audit, no questions and no prosecution. It’s a great deal for those who may have acted willfully when opening their account or concealing it through use of an offshore entity and nominee owner.
The one catch is that you must apply for amnesty before contacts you. Once you receive an audit notice or knock on the door its too late.
The tax lawyers at Mahany & Ertl have helped many people with a wide variety of offshore tax matters – OVDI, FBARs, tax amnesty, foreign corporations and FATCA to name a few. All inquiries are protected by the attorney – client privilege and are kept in complete confidence. For more information contact attorney Bethany Kroes at (414) 223-0464 or by email at
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.