[Post updated 2019] An article in the Australian Financial Review claims that the IRS is ramping up its activities in Australia. According to the article, the IRS is “scrutinizing the tax affairs of United States citizens living in Australia with renewed intensity, as the worldwide battle to shore up dwindling government tax reserves heats up.” The source of their story is Australian accountants.
We aren’t surprised by the headline. In fact, the IRS is searching worldwide for unreported income and unreported foreign accounts. Obama’s FATCA legislation (Foreign Account Tax Compliance Act), passed in 2010 and delayed several times, is now in full effect. That means foreign financial institutions must report accounts belonging to U.S. taxpayers. Even if an American only has signature authority over an account, it still must be reported to the IRS.
Fast forward to 2019 and the IRS FATCA reporting structure should not be catching anyone by surprise. This includes American expats, dual nationals and green card holders. Simply because a U.S. citizen holds a second citizenship or resides overseas doesn’t change the reporting requirements.
Since the early 1970’s, U.S. taxpayers have been required to report foreign accounts but compliance was spotty. FATCA now makes foreign banks, brokerage firms and other financial institutions the eyes and ears of the IRS.
Penalties for not reporting foreign income are steep. The penalties for an unreported offshore account are even higher. The latter can involve prison and civil penalties of up to $100,000 or 50% of the highest account balance if the IRS deems the nonreporting to be “willful.” Even nonwillful violations can carry penalties of $10,000 per year.
With the increased penalties come new whistleblower opportunities. As we live in an increasingly mobile society, we expect to see cross border tax evasion to increase.
Since 2013, the Australian Tax Office and the IRS have been cooperating and sharing information. Because it is still easy to hide assets using shell companies or in nominee names, there are likely to be many whistleblower opportunities for years to come.
In 2017, Paul Hogan (Crocodile Dundee) was in the news with his public dispute with the Australian Tax Office. Tax disputes are rarely made public because of strict confidentiality laws. They only become public upon an indictment or a court battle.
Dundee told reporters he was did not payoff the tax agency to settle a reported $150,000,000 tax debt. In an interview, he called tax officials “boofheads”and said the American IRS, British and Australia Tax Office looked up his “quoit” (anus) for years and found nothing.
Do Americans in Australia Really Have to Worry?
Many expats don’t seem to worry too much. After all, if they are living and banking in a foreign country, how would they ever get caught? Apparently one Australian publication had this to say in 2017,
‘The IRS is also introducing a whistleblower incentive as part of the campaign, which is aimed at accountants, lawyers and anyone who has been assisting a taxpayer, which would include professionals here in Australia with US taxpayer clients. The IRS is trying to get professionals to step forward and basically rat on their clients.”
While we don’t think that people who report criminal behavior are rats, we do know that the IRS generally won’t take information covered by the attorney – client privilege. Unfortunately, there is no similar privilege between accountants and clients. The courts also take the position that lawyers who prepare and sign returns are acting as preparers and can be forced to testify against their own clients.
IRS Whistleblower Programs Awards
Under the IRS whistleblower program, people with inside knowledge of tax cheats can receive large cash rewards. The amount of the award is based on how much the government collects.
Of particular concern to Americans living in Australia or Australians living in the United States are superannuation accounts. The Australian Taxation Office provides special tax treatment to Australian self-managed superannuation funds (SMSF) but the IRS does not. Under the Internal Revenue Code, income from SMSFs is taxable as ordinary income.
FATCA and America’s unique offshore reporting rules have certainly created a tremendous amount of confusion. That doesn’t let taxpayers off the hook, however.
Are the Rewards Real?
In 2016, the U.S. Securities and Exchange Commission (SEC) has paid an Australian and former BHP Billiton employee a $3.75 million whistleblower award for reporting the company’s violations of the Foreign Corrupt Practices Act at the Beijing Olympics. This case marks the first time the SEC has paid a whistleblower award to an Australian. Under the Sarbanes-Oxley Act, the SEC offers whistleblowers cash awards for tips leading to successful government recovery.
In May 2015, BHP Billiton agreed to pay $25 million to the SEC to resolve allegations the company provided government officials with trips to the Beijing Olympics.
If you have knowledge of an unreported foreign account or foreign income, give us a call. Are services are confidential and protected by the attorney – client privilege. Whistleblowers anywhere in the world are eligible for rewards, even if they are not a U.S. citizen. Are services are offered on a contingent fee basis meaning you don’t owe us anything unless we collect money on your behalf. Our initial consultations are free and without obligation. IRS whistleblower claims accepted worldwide.
MahanyLaw – America’s IRS Whistleblower Program Lawyers