by Brian Mahany
The IRS is looking for unreported offshore accounts worldwide. This week, the IRS obtained a John Doe subpoena from a federal court allowing authorities to search for records from Canadian Imperial Bank of Commerce’s FirstCaribbean International Bank (FCIB). Previous IRS enforcement efforts have been targeted at banks in Switzerland, Israel and India.
Owning an offshore account is entirely legal if the account is properly reported. Foreign bank and financial accounts (that includes brokerage and hedge fund accounts) must be disclosed yearly on a Report of Foreign Bank and Financial Accounts or “FBAR” for short. Failure to file FBARs can be a felony if the failure to report was willful and can carry huge civil penalties.
Many U.S. taxpayers use offshore accounts to hide money from creditors or the IRS. Often, however, foreign born Americans, resident aliens and dual nationals simply don’t understand the foreign account reporting requirements. Both the General Accounting Office and the National Taxpayer Advocate have given the IRS failing grades for the agency’s outreach and education efforts.
Many Americans have accounts in the Caribbean. The Bahamas and the Cayman Islands have long been popular offshore “tax havens.” A combination of low taxes, fiscal stability and a tradition of bank secrecy make several of these nations popular spots for banking. By targeting FCIB, which is headquartered in Barbados, the IRS is sending a clear message that it will hunt for unreported offshore accounts wherever they may be found.
The IRS obtained a John Doe subpoena from a U.S. District Court Judge. That subpoena is directed to Wells Fargo Bank. FCIB maintained a correspondent relationship with Wells Fargo. That allows people from the U.S. to wire money back and forth to Barbados where FCIB is located.
Foreign banks are beyond the reach of the IRS’ subpoena power but most foreign banks maintain a correspondent relationship with one or more U.S. banks. Those correspondent banks are within the reach of the IRS and must respond to the court ordered summons.
The IRS says it was alerted to FCIB in part from amnesty filings. Currently the agency is offering an amnesty program for people with unreported offshore accounts. The program, called the Offshore Voluntary Disclosure Program (or “OVDP”) gives participants a free pass from criminal prosecution and audit. Taxpayers accepted into the program generally pay a one time 27.5% penalty, however, based on the highest account balance within the last 8 years.
As more and more taxpayers come forward, the IRS mines the amnesty data to discover where Americans have unreported offshore accounts. It then uses that data to target its criminal prosecutions and enforcement efforts.
There are other programs for people with small balances or who can prove their failure to file FBARs was not willful.
Of interesting note is that the IRS subpoena seeks records going all the way back to 2004. Many taxpayers have attempted to quietly repatriate their money or move it to another country with the hopes of greater secrecy. By going back 8+ years, however, the IRS is specifically targeting people who attempt to move money in order to stay ahead of being discovered.
The world is getting smaller and smaller. Hiding money from the IRS carries huge risks. With the probability of getting caught increasing daily, the risks just are not worth it. As noted above, there is an amnesty program but even that comes with a catch. You are only eligible if you file for amnesty before the IRS has your name. If you hold funds at Canadian Imperial Bank of Commerce’s FirstCaribbean International Bank, time is running out.
Amnesty is not for everybody and for the many dual nationals or green card holders that simply don’t know the rules about offshore accounts, there may be better options. Again, however, you must get to the IRS before they get to you.
The tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of foreign reporting problems. From unfiled FBARs to the new FATCA legislation to the OVDP amnesty program, we can help. We are the exclusive legal services provider to the CPAmerica organization for foreign reporting issues meaning we are the lawyers that other professionals turn to with questions.
For more information about unreported offshore accounts, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Whether you hire or us or not, we will gladly discuss your options at no cost and without obligation.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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