by Brian Mahany, Esq – Legal Correspondent
We have long said that the IRS and Justice Department is not letting up in their assault on taxpayers with unreported foreign accounts. Despite our warnings, many people with offshore wealth are still sitting on the fence. That “wait and see” approach could land them in jail.
Why? Last week we reported on a 79 year old widow Mary Estelle Curran who pled guilty to felony failure to report an offshore account. A Wall Street Journal headline story this week (U.S. Is Preparing More Tax Evasion Cases) bolsters our belief that Americans with unreported offshore accounts need a plan. Now. Holding out and waiting for political common sense is not an option.
Experts across the country agree that the IRS is dramatically stepping up efforts to prosecute people with unreported offshore accounts. Once upon a time, prosecutors seemed to target wealthy business owners with unreported Swiss accounts. Now we see prosecutions against middle class Americans and dual nationals who were simply sending money home to family.
The prosecution against a high school educated, 79-year-old widow from Palm Beach who inherited her overseas money marks a new low point in the IRS’ efforts. The clear signal is that no one is too old or too sympathetic to avoid jail.
Whether a judge sentences Curran next month to prison or not is almost irrelevant. She is now a convicted felon and must pay the IRS $21,666,929 in penalties. This on an estimated tax loss to the government of about $500,000! By our math, that is a 4000% penalty.
The real “story behind the story” in the Curran case is that she attempted to enter the IRS’ offshore account amnesty program. Unfortunately, by the time she applied the government already had her name. Under the current amnesty program rules – called the Offshore Voluntary Disclosure Program – taxpayers are only eligible to participate if they apply before being contacted by the IRS or before the IRS has obtained their name.
With another round of IRS John Doe subpoenas approved this week by a federal judge in Manhattan, no one really knows when the IRS will identify them. Even if the IRS sits on the information for 6 months or more, that person becomes ineligible once the IRS has their name on a list.
Unlike Santa Claus’ mythical list of who has been naughty and nice, the IRS’ list is real and could mean the difference between jail and freedom and of paying a 27.5% amnesty penalty or in the case of Curran, a penalty that approaches 4000%.
The stakes have never been higher.
We are not fans of the current laws on offshore reporting. But we are realists. Opening a foreign account is legal and makes sense but make sure it is done correctly and with proper advice. (We help people who already have problems with the IRS – if you need planning advice, start with a professional such as Bobby Casey and his team at Global Wealth Protection LLC.)
As long as one remains a citizen (that includes dual nationals) or holds a green card, the government requires that all foreign accounts must be reported annually on a Report of Foreign Bank and Financial Accounts or FBAR form (TD F 90 – 22.1). Willful failure to file an FBAR is a felony punishable by 5 years in prison. Even an innocent failure to file an FBAR could still land you in hot water with the IRS and cause significant penalties.
There are some exceptions from reporting for certain assets including precious metals held in physical form but even those rules are complex. Many people we meet think that their global escape plan simply means sending money to an account in Monaco or Lichtenstein or some other country that is rumored to not share information with the IRS. That may have worked at one time but it won’t likely work today.
As noted above, there are options. For those who remain citizens, there is an amnesty but you must act quickly. For those who can demonstrate their innocence, there are other alternatives such as opt outs and in some cases, the ability to avoid all penalties. For those who haven’t yet created an offshore plan, there are experts who can help you before you move money or purchase gold.
If you already have an unreported foreign bank or brokerage account – or other financial assets – seek assistance today before its too late. Understand your options, learn how to correct the problems and protect your financial future.
Presently the IRS looks back 8 to 10 years meaning that simply closing an unreported account today and shuffling your assets doesn’t necessarily get you off the hook. In fact, the IRS often considers that an intentional act of evasion depending on how the account is closed and how the money is transferred.
With the foreign banks set to begin identifying account holders with U.S. ties next year under the new FATCA law, the time to take action is now.
[Brian Mahany is an attorney with offices throughout the United States. He specializes in offshore tax reporting and fraud litigation. His firm, Mahany & Ertl, is a preferred legal services provider to the CPAmerica organization of accounting firms meaning they are the lawyers the experts turn to for foreign reporting problems. Brian is also a friend of Global Wealth Protection.
Brian limits his offshore reporting practice to people who have unreported accounts or are under audit / criminal investigation by the IRS. He can be reached at [email protected] or by telephone at (414)704-6731 (direct). Because he is an attorney, the attorney – client privilege, protects all inquiries.]