by Brian Mahany
We have long said that the IRS and Justice Department is not letting up in their assault on taxpayers with unreported foreign accounts. Despite our warnings, many people who call us still elect to take a “wait and see approach.” Our story last week on 79 year old widow Mary Estelle Curran and a headline story in today’s Wall Street Journal (U.S. Is Preparing More Tax Evasion Cases) should cause all the holdouts to rethink their position.
Experts across the country agree that the IRS is dramatically stepping up efforts to prosecute people with unreported Swiss and other offshore accounts. Once upon a time, prosecutors seemed to target wealthy business owners with unreported Swiss accounts. Now we see prosecutions against middle class Americans and dual nationals who were simply sending money home to family.
The prosecution against a high school educated, 79 year old widow from Palm Beach who inherited her overseas money marks a new milestone in the IRS’ efforts. The clear signal is that no one is too old or too sympathetic to avoid jail.
Whether a judge sentences Curran next month to prison or not is immaterial. She is now a convicted felon and must pay the IRS $21,666,929 in penalties. This on a tax loss to the government of about $500,000.
The real “story behind the story” in the Curran case is that she attempted to enter the amnesty program. Unfortunately, by the time she applied the government already had her name. Under the current amnesty program rules – called the Offshore Voluntary Disclosure Program or “OVDP” for short – taxpayers are only eligible to participate if they apply before being contacted by the IRS or before the IRS has obtained their name.
With another round of IRS John Doe subpoenas approved this week by a federal judge in Manhattan, no one really knows when the IRS will identify them. Even if the IRS sits on the information for 6 months or more, that person becomes inelegible once the IRS has their name on a list.
Unlike Santa Claus’ mythical list of who has been naughty and who has been nice, the IRS’ list is real and could mean the difference between jail and freedom, paying a 27.5% amnesty penalty or in the case of Curran, a penalty that approaches 4000%.
The stakes have never been higher.
Federal law says that all foreign accounts must be reported annually on a Report of Foreign Bank and Financial Accounts or FBAR form (TD F 90 – 22.1). Willful failure to file an FBAR is a felony punishable by 5 years in prison. Even an innocent failure to file an FBAR could still land you in hot water with the IRS and cause significant penalties.
As noted above, there is an amnesty but you must act quickly. For those who can demonstrate their innocence, there are other alternatives and in some cases, the ability to avoid all penalties.
If you have an unreported foreign bank or brokerage account – or other financial assets – call us. We can help you determine whether the account is reportable and what options you have. The IRS looks back 8 to 10 years meaning that closing an account today doesn’t necessarily get you off the hook. In fact, the IRS often considers that an intentional act of evasion depending on how the account is closed and how the money is transferred.
With the foreign banks set to begin identifying account holders with U.S. ties next year under the new FATCA law, the time to take action is now.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and our satellite office in San Francisco, California. Services available worldwide.
[Want more information immediately? We have posted hundreds of articles on a wide variety of foreign reporting topics on our Due Diligence blog. Just type in “FBAR” or “OVDI” – or any other tax topic – in the search engine bar located in the upper right hand corner of our blog home page.]