Global tax issues are a top priority for the Internal Revenue Service Criminal Investigation Division (IRS-CI), which focuses its work on investigating taxpayers who willfully engage in tax evasion. Significant efforts are also being made to identify and take legal action against promoters and financial institutions who have assisted taxpayers in avoiding their U.S. tax obligations through illegal tax shelters and other methods that facilitate nondisclosure of their foreign accounts.
Identifying tax violators
The U.S. State Department estimates that as many as 9 million Americans may be currently residing abroad, but the Financial Crimes Enforcement Network (FinCEN) received only one million FBARs in 2015. The IRS-CI has therefore become more diligent in its criminal investigations of expats and other U.S. taxpayers who may be using foreign bank accounts to evade taxes.
Methods being utilized to identify violators include:
- Use of John Doe and Title 31 summons or subpoenas of foreign bank records and offshore credit card transactions
- Data mining from a variety of sources, including Swiss Bank and other financial institution records, OVDP Initiative and Program records, and public data pools (note that in recent years the IRS has come under attack for its social media data mining, among other things)
- Obtaining information from whistleblowers, cooperators, and data leaks
- Mutual Collection Assistance Requests to foreign governments who are party to tax treaties with the U.S.
The IRS crackdown on undisclosed offshore accounts is showing no signs of slowing down, and large numbers of people are avoiding prosecution by coming clean through disclosure programs. In fact, increased efforts in this area have resulted in billions of dollars in restitution and criminal fines for the government. We are also seeing a rise in offshore account-related litigation.
Prosecutions and sentencing
Over the past few years, there has been a significant increase in FBAR penalty cases filed by both the government and U.S. taxpayers – from only 7 cases in 2014 to 52 in 2017.
Sentences have also increased – from 2009 through 2015, the courts usually imposed probationary sentences for tax violations, but in 2016 we began to see prison sentences and higher monetary fines. The government’s intent to pursue more higher sentences was made evident in the recent U.S. vs. Hyung Kwon Kim case, where a Connecticut resident convicted of hiding more than $28 million in foreign banks now faces a statutory maximum sentence of five year’s imprisonment. In Kim, the government pursued a criminal sentence under the more stringent U.S.S.G. § 2S1 sentencing guidelines rather than the usual § 2T1 tax guidelines.
It is more important than ever to come clean with your offshore assets. The attorneys and accountants at Moskowitz, LLP can help you come into compliance at the least possible cost to you.