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Offshore amnesty ends: A review of a decade of enforcement

Over the last decade, the IRS has sought to close the tax gap by going after unpaid taxes on income earned in foreign financial accounts. The historic crackdown started with a whistleblower detailing how UBS and other Swiss banks helped Americans hide money to avoid taxes.

A 2008 Justice Department case against UBS “pierced the veil of Swiss banking secrecy” and became a model for prosecutions against banks and financial firms in the Caribbean, Liechtenstein and Israel. These institutions have paid approximately $6 billion and turned over customer information to avoid criminal prosecution.

 

Shifting to individual taxpayers

Once the Service started to receive information about U.S. taxpayers who failed to report foreign accounts or pay taxes, it prosecuted more than 150 individuals. Penalties for failing to file a disclosure on accounts with more than $10,000 are up to half the value of the account. Some cases even included jail sentences and civil penalties totaled roughly $500 million.

In 2009, the IRS offered the first Offshore Voluntary Disclosure Program. The amnesty program allowed taxpayers to pay back taxes, interest and penalties then return to compliance without the risk of a criminal prosecution. The first versions were time limited. The latest had been open-ended, however it will now be closing on September 28, 2018 as applications have dropped off.

How many taxpayers participated? About 56,000 individual taxpayers came forward and paid more than $11 billion to resolve offshore account issues. Even as the current OVDP amnesty closes, the Streamlined Domestic/Foreign disclosure procedures remain open to correct FBAR or foreign account reporting mistakes.

Fatca and information exchanges

The Foreign Account Tax Compliance Act (FATCA) has come into effect and more countries are sharing financial and account holder information than ever before. Attention may be shifting to the far East. And in a first, an executive of a bank with locations in Hungary and the Caribbean pleaded guilty to violating Fatca rules.

The IRS has also increased it usage of “John Doe summons” to learn taxpayer identities even when the information is located outside of the country. It is also using this strategy against Coinbase as the crackdown encompasses virtual/cyber currency.

The IRS has put even more snares in place to trap the unwary. At the first sign of an offshore or bitcoin reporting issue, seek counsel from a tax attorney.

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