The IRS Dirty Dozen 2016, #5: Hiding Money Offshore

Ten of this year’s honorees for the IRS Dirty Dozen tax scams are repeats from last year, including Hiding Money Offshore, number 5 on the 2016 list. 

Our blog posts frequently note the importance of reporting your foreign bank accounts and holdings. This year, we are going to focus on some recent developments that have increased the probability of offshore financial accounts being discovered by the IRS.

A bad retirement plan

Following the infamous Union Bank of Switzerland (UBS) Scandal, in 2009 UBS entered into a deferred prosecution agreement with the United States in which the Swiss bank agreed to identify and provide account information for taxpayers who were evading U.S. income taxes. UBS revealed the identity of Jerrett D. Mitchem of North Carolina as part of that agreement. 

Mitchem had received a $4 million inheritance from his parents that he had been holding in UBS accounts since 1995.  When the IRS contacted Mitchem in February of 2011 regarding the UBS accounts, he disclosed only his parents’ account information but not his own. He filed his 2004 through 2007 tax returns in November of 2011; in those returns he did not disclose the existence of his Swiss funds, nor did he report the substantial capital gains and interest income he earned on the UBS accounts. 

Mitchem, now 66 years old, was sentenced on February 18, 2016 to nine months in prison followed by two years of court supervision, three additional months of home confinement, and $151,089 in restitution to the Department of Treasury.

FATCA, IGAs and automatic third-party reporting

The Congressional Research Service (CRS) estimates that $100 billion in annual revenue is lost to the U.S. Treasury due to individuals and corporations hiding money offshore. The U.S. government currently utilizes three methods to find the offshore income of U.S. taxpayers:

  • The U.S. Foreign Account Tax Compliance Act (FATCA) and Intergovernmental Agreements (IGAs); 
  • Tax Information Exchange Agreements (TIEAs); and
  • Bilateral tax treaties.

These agreements and treaties provide either for spontaneous and automatic exchanges, or at least information exchange on request. We are seeing compliance with these provisions with increasing frequency. 

The success rate of these efforts is evident – there are record numbers of individuals who are taking advantage of the OVDP program or the newer Streamlined Compliance Filing Procedures, and/or who are renouncing their U.S. citizenship.

Helping clients worldwide with offshore account matters

Countries throughout the world are cooperating and intensifying their efforts to detect tax evasion techniques and identify tax evaders worldwide. Although owning an offshore account is not illegal, U.S. taxpayers are required to declare and report their offshore accounts and foreign income every year. Failure to do so may result in severe civil and criminal penalties. The tax law firm of Moskowitz, LLP has extensive experience representing clients with all aspects of reporting offshore banking. Contact our San Francisco office today for a consultation. 

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