The world is becoming more transparent by the day. As more banks and governments exchange financial information, thousands of innocent folks are getting caught in government drag nets designed to identify those with unreported offshore accounts.
“Innocent”? Yes, most of the folks we encounter are dual nationals, foreign born Americans, expats living overseas or hard working Americans with legitimate offshore accounts. They haven’t complied with the IRS’ offshore reporting rules because they simply don’t understand the rules. The implementation of FATCA earlier this summer means that millions will soon be receiving notices from the IRS.
Many of these folks will receive very high penalties, especially if they attempt to navigate the complex world of offshore reporting on their own. The true tax evaders are not the people with a foreign account in their name (although they will be the first to get caught.) The problem lies with nominee accounts; accounts opened in the name of shell companies.
The popular British tabloid, The Daily Mail, editorialized about shell companies earlier this week but offered few suggestions on how to combat the problem or even how widespread is the problem.
Although shell companies are not illegal here in the United States, the IRS often considers them an affirmative act of tax evasion if the entity has no valid business purpose. Some folks create offshore companies that in turn are owned by other offshore companies that in turn open a bank account. They use shell companies to hide their money from Uncle Sam and creditors. The Daily Mail correctly notes that some countries such as Saudi Arabia and the United States are some of the easier countries to create nominee entities.
The United States? Yes, it is true! More information is needed to obtain a driver’s license than to create an LLC or corporation. Although the incorporator must be identified, subsequent directors and owners have no such requirements in most states.
Failure to file an FBAR form or properly report an offshore account can be a felony if willful. Statistically, few people get prosecuted for unreported offshore accounts. Combine unfiled FBAR forms and accounts in the name of shell companies, however, and the odds of prosecution increase exponentially.
If you have failed to report your offshore financial assets, time is running out. We recommend everyone come into compliance, of course. Even if there are some penalties involved. If you have unreported accounts and are holding the money in a shell company’s name, speak to a experienced IRS tax lawyer immediately.
The IRS operates on a first contact rule. If you approach the IRS before they contact you or get your name from a foreign bank, it is almost always possible to avoid criminal prosecution. Wait too long, however, and all bets are off.
For more information, speak to us today. Let an experienced foreign tax and FBAR lawyer explain your responsibilities and options. Initial consultations are free and always protected by the attorney client privilege. Contact attorney Bethany Canfield at or by telephone at (44) 223-0464 for more information.