Frequently Asked Question (FAQ) 14 of the 2014 edition of the Offshore Voluntary Disclosure Program asks:

Question:  “I’m currently under examination.  May I participate in the OVDP?”

Answer: “No. If the IRS has initiated a civil examination for any year, regardless of whether it relates to undisclosed OVDP assets (See FAQ 35), the taxpayer will not be eligible to participate in the OVDP.  A taxpayer under criminal investigation by CI is also ineligible.  In these circumstances, the taxpayer or the taxpayer’s representative should .discuss undisclosed financial account and assets with the agent.”

The disqualifying factor is not that an audit was initiated at some time but whether the taxpayer is currently under examination.  Thus, if an audit has been initiated, the question becomes when is the audit deemed closed for purpose of qualifying for the OVDP.

According to one IRS agent on the OVDP Hotline, normally signing Form 4549 as an agreed case ends the audit.  But, internally, the IRS does not view the audit as closed until the 4549 is reviewed by the manager and a letter confirming its acceptance has been sent.  Thus, the taxpayer seeking OVDP protection should normally wait for the letter.

For an agreed case, Letter 987 is sent.  For a no change case, Letter 590 is sent.  This normally takes a couple of months. At about the same time, a Code 300 series entry should appear on the taxpayer’s account transcript.

If the taxpayer’s name is about to be turned over, however, he or she might submit names to CI with a copy of the signed Form 4549.  The signed Form 4549 might be accepted as closing the audit if there were no items reversed by the reviewing manager.

I did not discuss the situation of an un-agreed case with the Hotline agent because I believe the audit would not be considered closed and I can only envision extraordinary circumstances leading one desiring OVDP protection to appeal a revenue agents report on domestic issues.

Filing a petition in Tax Court after submission to the OVDP would also be against interest because the commissioner would presumably have to counter-claim on the offshore issues raised in the OVDP submission.  Thus, such action would be self-defeating.


Regarding the last sentence of FAQ 14, if there are no questions asked during the examination about offshore accounts or income and the taxpayer does not volunteer that he or she has an offshore account or unreported income, the OVDP agent believed the taxpayer should still be eligible for the OVDP.

  • Thus, if the agent never asked and client never volunteered – OK.
  • Also, OK if examination questionnaire asked and client answered truthfully, but the agent never pursued the issue.

Caveat: Agents are generally now asking: Is there any income not reported in the return?

The OVDP agent suggested that a taxpayer may answer no to the unreported income question, and still be eligible for the OVDP if he can establish that he genuinely did not believe there was unreported income because he does not have the account statements.  But, this is a slippery slope and could lead to additional charges if the taxpayer is not being  truthful with his or her counsel about the examination questions and answers or even if his memory is distorted and there is income and very large income.

There are many moving parts to this question and whether the client is allowed to enter the OVDP will depend on specifics.

Bottom line:  the taxpayer must exit the audit with clean hands.

© 2015 by Robert S. Steinberg, Esquire
All rights reserved

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A Wall Street Journal of March 14, 2015 by Laura Saunders reveals how Gregg Kaminsky and his tax advisors violated the cardinal rule of voluntary disclosure practice, “Don’t make things worse than they already are.”

Kaminsky, now a 46 year-old entrepreneur with two young children, had opened a Swiss account at UBS in 2000. Kaminsky’s stated reason for opening the account: His grandfather having helped Jews escape during Holocaust, had told him to always have a secret stash.  Kaminsky made deposits to the account after it was opened.  By mid-2005 the account value had risen to $1.15 million.

Kaminsky did not file the required FBARS and did not include income from the accounts in his income tax returns.  Moreover, he left the assets off federal financial tuition aid forms he’d filed in 2007 and 2008 to obtain low-interest loans for an MBA program.

Making things worse

In 2009, after the UBS scandal became public, Kaminsky closed the UBS account and wired his funds from the account to a HSBC bank account in Hong Kong thus becoming one of what IRS calls “The Leavers.” (Those who fled UBS for other banks thought to be not yet on the IRS radar screen).  In leaving he’d instructed UBS that he expected them to keep   “details regarding the account over its history … entirely confidential.”  Unfortunately for Kaminsky UBS, trying to save its own neck, gave him up to the Department of Justice.

Making things yet more worse

In 2010, Kaminsky decided to come clean.  He claims he was advised to forego the Offshore Voluntary Disclosure Initiative, as it was called at the time.  Instead he made an ill-advised “quiet disclosure” by filing amended returns for the years 2009 through 2012 reporting his previously unreported offshore earnings.  Kaminsky’ s quiet disclosure was ill-advised because his failure to file FBARS and report income from his Swiss and Hong Kong accounts was clearly not due to reasonable cause and almost certainly not non-willful, at least from 2009 when his movement of funds to Hong Kong created pretty compelling evidence of knowledge and intent to conceal.

Making things yet even more worse

Not only was the quiet disclosure ill-advised, but worst of all his errors of judgment, the amended returns did not include all of Kaminsky’s gross income earned.  He left out of the amended returns income earned from the second life virtual world. SL members buy and sell goods and services using a currency called Linden Dollars (L$). Linden Labs. The income earned from such activities is gross income that must be reported on a member’s tax return. Whether or not the SL income omission was intentional, it was a fatal nail in the coffin.


A DOJ press release (12/18/14)

“Gregg A. Kaminsky has pleaded guilty to one count of willfully failing to file a Foreign Bank Account Report with the U.S. Department of Treasury in connection with his concealment of income and assets in accounts in Switzerland, Hong Kong, and Thailand over several years, as well as his failure to report certain income earned in the virtual world, “Second Life.”

Kaminsky was sentenced this month and his punishment seems not overly harsh in relation to his offenses (In total he’d failed to report over $400,000 in income and evaded tax of about $125,000):

  • Four months in prison followed by two years of supervised release.
  • Two months of home confinement.
  • 200 hours of community service.
  • Pay restitution in the amount of $91,983 to the IRS.
  • Pay an FBAR civil penalty of $250,635.20, which was about fifty percent of the balance in Kandinsky’s HSBC account in Hong Kong as of June 30, 2009.  The penalty could have been much higher had not the FBAR penalty statute of limitations run on the earlier years when his bank account value had peaked.

Lessons to take from the plight of Mr. Kaminsky

  1. Filing amended returns for offshore transgressions, whether in a “quiet disclosure” or under the “Streamlined Filing Compliance Procedures” is dangerous and must be undertaken with great care and only after a thorough analysis whether the taxpayer’s conduct in failing to comply with the tax law and Bank Secrecy Act was willful.
  2. The willfulness analysis is not the end of the process requiring great care. The amended returns must be prepared scrupulously and must capture all income earned and claim only those deductions clearly allowed under the Internal Revenue Code. Such returns are not ordinary returns in which aggressive filing positions should be taken. With hindsight errors or aggressive, unsustainable deductions may look like more evidence of criminal intent to conceal a prior tax crime, reduce the tax owed on the prior tax crime, or of yet another tax crime.

© 2015 by Robert S. Steinberg, Esquire All rights reserved



The Department of Justice Tax Division acting assistant attorney general, Caroline Ciraolo, speaking at the Federal Bar Association Tax Section annual tax conference (reported by Nathan J. Richman, Tax Analysts Tax Notes Today, March 9, 2015), stated:

We are taking particular interest if we find evidence of an account holder claiming non-willful conduct in a streamlined compliance filing or delinquent submission only to find that evidence produced by the Category 2 banks suggests otherwise. We are using information gleaned from the program to open new investigations, pursue new targets around the globe, and we will continue to do so as the information is developed.

The reference to Category 2 banks refers to Swiss banks participating in the DOJ Swiss Bank Settlement Program under which the DOJ is receiving information. The DOJ is using that information to verify certifications of non-willfulness under the Streamlined Filings Procedures.

Jack Townsend in his Federal Tax Crimes blogs discussed the likelihood of one being prosecuted for a false certification. Jack compares the analysis to a spectrum at one end being non-willful and at the other end being willful. I prefer to analogize to the Bell Curve because it’s more visual. The left-hand flat extreme deviation represents non-willful and the right-hand flat extreme deviation willful.

So, what are the odds of being prosecuted for one’s certification?

  • Those at the left will likely not be prosecuted for an unintentional factual error in their certifications.
  • Those at the right-hand extreme deviation are willful and will also face perjury charges and possible extended stature of limitations issues if they certify that they were non-willful.
  • For those in the middle bulge of the Bell Curve astute legal analysis and sound judgment are required to determine whether it is wiser to proceed under the more risky Streamline Filing Process than to have the client enter the no-prosecution safety-net of the OVDP.

Townsend surmises that those in the middle may have their certifications denied for want of sufficient facts to establish non-willfulness but will not be charged criminally. That assumes that the certification is truthful and contains no material false statements or misleading statements.

Remember also that the Streamlined Filing Process offers not specific timetable for obtaining closure on one’s voluntary disclosure. It is simply a filing process with penalty relief (no penalty for qualifying non-U.S. persons and a 5% penalty for U.S. persons). The IRS may re-open the issue of non-willfulness at any time within the statute within the statute of limitations (or, without limitation if fraud is found) as it receives information from its varying sources.

The lesson to be gleaned: Make the certification factual and truthful; and, do not cherry-pick facts, leaving out negative facts, or exaggerate so as to make the certification misleading.

© 2015 by Robert S. Steinberg, Esquire All rights reserved.

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On February 24, 2015 I participated in an ABA Tax Section Webinar, “Answering Your Criminal and Civil Offshore Disclosure Questions.”  On the Webinar panel were two IRS officials:  David W. Horton, Director, IRS International Individual Compliance; and John C. McDougal, Senior Special Trial Attorney, IRS Office of Chief Counsel (Chief Counsel are the IRS in-house Attorneys).

Below I’ve paraphrased (not quoted verbatim) some of the comments of the two IRS officials without identifying who made what comment.

Criminal Enforcement

  • The Department of Justice’s greater concern is over funds that originated in the U.S. as opposed to funds that were always offshore. Thus, U.S. profits and gains diverted to offshore accounts garner more attention on the criminal side than do foreign gifts or inheritances that were deposited into offshore accounts.
  • Reliance on professional advice, once a defense, now has become evidence that the advisor and taxpayers were co-conspirators.
  • IRS is following transfers of funds by so-called “leavers.” Who moved funds from UBS in 2009 and 2010 and views that foolish conduct as significant evidence of willfulness.

Swiss Bank Settlement Program

  • Swiss Bank Secrecy laws still prevent banks in the program from turning over a client’s name unless:
    • The client consents.
    • A proper Treaty Request is made (must indicate fraud) such as where nominee entity was employed although a Treaty Protocol pending in the U.S. Senate would expose personal numbered accounts to being turned over.
    • The banks must turn over the name and location of bank accounts to which “Leavers” transferred funds but not the name itself. With that information IRS will be able to identify the individuals by obtaining a John Doe Summons requiring the bank to turn over names.
  • The banks in the program must close the accounts of U.S. depositors who fail to come into compliance with U.S. tax reporting.
  • Banks in the program seeking to mitigate penalties are contacting customers to encourage them to enter the OVDP.


  • Most of the questions during the webinar concerned the Streamlined Process – see comments below.
  • Preclearance of names is now taking much longer than when the Program first opened because IRS has much more data to go through in order to check a name.
  • RSS Comment: That IRS has more data also means that IRS is more likely to discover a person’s identity.
  • Valuations of included non-financial assets: IRS generally allowing no discounts (minority interest or lack of marketability) from fair market value as it views the inclusion of the value as “rough justice.” Any reasonable good-faith estimate of value is acceptable.

Streamlined Filing Compliance Procedures (or Streamlined Process)

  • The IRS continues to see no value in offering examples of what sort of conduct it would view as willful or non-willful. Each determination is very fact specific and there is a large body of case-law is applicable. Thus, the call is up to the attorney. Nothing more will be forthcoming from IRS on the question of non-willfulness.
    • Willful is one of those “know it when you see it” things.
    • Ask yourself: Are you nervous about having no protection from criminal indictment, or about having to pay the civil fraud penalty or draconian FBAR penalties? If not, Streamlined is OK.
  • Size of the account does matter but is not determinative other than at the extreme ends of the spectrum (very small being an indicator of non-willful conduct and very large being a strong indicator of willful conduct)
  • If joint returns were filed both spouses must file under the Streamlined Process because a joint return must be amended with a joint return. That is because the tax is assessed on the return and not under a closing agreement as in the OVDP (where one or both spouses can enter).
  • There is no acknowledgment of filing returns under the Streamlined Process because it is just a process for filing tax returns. Aside from the penalty relief it is just like filing a normal return.
    • RSS Comment: But don’t make the mistake of thinking that Streamlined returns are ordinary returns. They are not. You are filing under threat of criminal prosecution if you do not meet the test of being non-willful, and of other charges if your Non-willfulness Certification is false or leaves out negative facts that make it misleading or if the returns you file are in any way false or misleading.
    • IRS cashing of your check or sending a bill for additional interest is not an acknowledgment that your returns pass muster in the Streamlined Process. Your return can still be selected for audit later on and there is no process by which one can request an early audit.
  • Taxpayers with accounts at listed banks (subject to the 50% OVDP penalty) can go Streamlined if non-willful.
    • RSS Comment: In theory yes, but most with accounts at bad banks have engaged in conduct that would be viewed as willful (Nominee entity, structuring, loans etc.).
  • Preclearance – Practitioners stated that some are submitting names preclearance even if they intend to go Streamlined, just in case evidence of willfulness is discovered.
    • The IRS people discouraged this tactic. If non-willful why submit names?
    • The reason is that the accounting and investigative work in reviewing statements for the Streamlined may turn up evidence of willfulness. If names are submitted you will probably have 50 days before the OVDP Letter is due. During that time you should have a better idea if you can, in fact, certify non-willfulness.
    • You can also pull transcripts to ascertain if an audit has been commenced. But, the transcript may show an audit code before the audit has commenced. It is the sending of the audit notice and due process rights letter that commences the audit and disqualified a taxpayer from the Streamlined Process, not the entering of the code in the system.
    • If a taxpayer is declined for OVDP in the names submission, he or she can still enter the OVDP if otherwise qualified, but believe that would be a rare case.
  • The key element for IRS in ultimately agreeing or disagreeing with the non-willful certificates is when the taxpayer learned of the filing requirements.
    • Those who learned of the filing requirement but stayed out of the OVDP for fear of the high penalty, but now want to avail themselves of the zero penalty (non-U.S. person) or 5% (U.S. person) would likely be viewed by IRS as willful.
  • PFICs: There is no OVDP short-cut rule for PFICs in the Streamlined Process.
  • Upfront Rejections from Streamlined: Are due mainly to the Certification on its face being insufficient and not reciting specific facts supporting the non-willful assertion. The IRS is not rejecting applicants merely because it disagrees with the conclusion that the conduct is non-willful. The IRS may, however, take that position if and when it audits the taxpayer’s returns.
  • The taxpayer no longer has to be otherwise tax-compliant to file returns under the Streamlined Process. The returns filed can be delinquent returns.

Quiet Disclosures

  • IRS is screening for amended returns filed outside the OVDP or Streamlined Process. So, taxpayers taking this route may expect an audit.
  • May be applicable to persons if not worried about criminal charges or willful FBAR penalties and feel strongly that reasonable cause is present.
    • Reasonable cause means not negligent.
    • RSS Comment: perhaps for some U.S. persons. But, non-U.S. persons better off in Streamlined Process since less likely to be selected for audit.

RSS Comment

Each case requires a decision about how to proceed.  These decisions are complex and require the assistance of a tax attorney experienced in these matters.

© 2015 by Robert S. Steinberg, Esquire All rights reserved



Consider the following fact pattern:

Father and daughter are participants in the OVDP who submitted their OVDP Letters after August 4, 2014.   Each owned separate unreported offshore bank accounts during the OVDP period 2006 through 2013.

The father’s account was with a bank on the IRS list of banks for which, after August 4, 2014 OVDP submissions, accounts are subject to a 50% Miscellaneous Offshore Penalty.

The daughter’s account is not on the list and would normally be subject to the 27.5% Miiscellaneous Offshore Penalty.

But, In October, 2013 the father added the daughter’s name to his listed bank account making her a joint owner.  The daughter was added to the account after the father suffered a mild stroke and feared he might suffer another more serious stroke and become incompetent.

Clearly the father’s listed account is subject to the 50% penalty; but, does the daughter’s joint ownership[ of father’s listed account for three-months render her non-listed account also subject to the  50% Miscellaneous Offshore Penalty?

Let’s look at the FAQs.


FAQ 1.1

A 50% offshore penalty applies if either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation. See FAQ 7.2.

FAQ 7.2

Beginning on August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50-percent miscellaneous offshore penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation:  an event has already occurred that constitutes a public disclosure that either (a) the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person; (b) the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person or (c) the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a “John Doe summons”) at the foreign financial institution or have accounts established or maintained by the facilitator.  Examples of a public disclosure include, without limitation:  a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.   A list of foreign financial institutions or facilitators meeting this criteria is available.


Once the 50-percent miscellaneous offshore penalty applies to any of the taxpayer’s accounts or assets in accordance with the terms set forth in the paragraph above, the 50-percent miscellaneous offshore penalty will apply to all of the taxpayer’s assets subject to the penalty (see FAQ 35), including accounts held at another institution or established through another facilitator for which there have been no events constituting public disclosures of (a) or (b) above (emphasis added).



I called the OVDP Hotline, leaving the usual voicemail message with my question.  Usually, one receives a call-back no earlier than the following day.  This time I received a call back in about an hour.  The OVDP agent told me he’d called back quickly because my question was novel. He said that the IRS position is that the OVDP FAQs are applied literally and to the letter.  The above quoted  FAQs 1.1 and 7.2  (“Frequently Asked Questions” that govern OVDP submissions) state in essence that if you own any interest in a listed bank at any time during the OVDP period all of your accounts are subject to the  50% penalty.  The OVDP agent initially thought, from a literal reading of the FAQs, that the 50% penalty would apply to the daughter’s separate account.   But, he felt that result to be harsh given my client’s unusual facts..  He discussed my question with others in his office and they concluded that the OVDP would follow the stringent rule even in these unfortunate circumstances.  He suggested, however, that when my client’s submission is reviewed by the field agent, I could raise the issue even though the OVDP FAQs are publicly stated to be rigidly applied.  The agent, he said, could elect send the matter to a higher level and a technical specialist would than review that interpretation of the FAQs to the above facts.

Of course, he also said my client could opt-out, but that is not a helpful option for my clients for   reasons not germane to the question discussed in this post.

© 2014 by Robert S. Steinberg, Esquire
All rights reserved.



Posted in 214 OVDP, NEW OVDP, OFFSHORE BANK ACCOUNTS | Tagged , , , , , | Leave a comment


New IRS Form for Certification
The IRS in January 2015 issued new Form 14653 (14654 for U.S. persons residing in the U.S.) which revises and replaces the required Certification by. U.S. Person Residing Outside of the Unites States for Streamlined Foreign Offshore Procedures.   Formerly, the Certification statement did not have a Form number.  More importantly, the new form includes in bold-red type-face the following admonition:

Note: You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.

 The above boldface paragraph is followed by the same statement contained in the original Certification format, namely:

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts. The field below will automatically expand to accommodate your statement of facts.

Although not publicly stated, apparently IRS has been deluged with Streamlined Submissions that do not state an adequate predicate for concluding that the taxpayer’s conduct was non-willful.  At a recent American Bar Association (ABA) Tax Section meeting IRS officials indicated that IRS will not further clarify what level of conduct of the taxpayer will be considered non-willful under the Streamlined Program.

No preclearance for Streamlined Filers
At the ABA meeting IRS officials also indicated that the agency has no plans to implement a preclearance process for Streamlined Submissions akin to the OVDP names preclearance procedure.  Also, taxpayers cannot secure their eligibility (i.e., not under examination) by submitting a letter of intent to enter the program.  Thus, the tax, information returns and certification must be submitted before IRS commences a civil examination of the taxpayer.

Streamlined filings not inexpensive
Not surprisingly in light of IRS’ coyness in refusing to more clearly define non-willfulness, one tax attorney commented at a the above ABA meeting that his firm spends more time on Streamlined cases than on many OVDP cases.  To insure that the Streamlined filing does move the client from the frying pan into the fire (i.e., subject him or her to criminal charges and draconian FBAR penalties), clients are asked to provide bank records, documents showing ownership and signature authority, bank correspondence and are questioned about communications with their return preparer. Certainly, the above is essential for submission by U.S. persons and sometimes for non-U.S. persons but not necessarily for all. For example, if a client has only one offshore bank account located in the country of residence it may not be necessary to review all bank records if the client is certain that no transfers have been made to offshore accounts in other countries. But, what documents should be examined depends heavily on the facts of a particular client.  In every case, however, I personally oversee the submission of the amended or original returns and FBARs and do not leave that part of the process to the return preparer acting alone.

Social Security Numbers required and obtaining one causes delays
The IRS officials acknowledged that taxpayers who need Social Security Numbers for participation in the Streamlined Program are often frustrated by delays of from six to nine months, the time it is taking to obtain an SSN.

Domestic Streamlined Filers receive more scrutiny
While IRS has yet to tabulate statistics concerning the Streamlined Filing Process, it appears that domestic filers are more closely scrutinized.  For example, domestic streamlined cases with five or more foreign information returns are referred to the IRS Large Business and International Division (IRM

Note: The comments of IRS officials and attorneys at the ABA meeting mentioned in this post were obtained from a Tax Analysts article by Andrew Velarde, “ABA Meting: No Letters of Intent Allowed before Entering Streamlined Program,” (February 3, 2015).

© 2015 by Robert S. Steinberg, Esquire
All rights reserved



Today the IRS released IR-2015-9, “Hiding Money or Income Offshore Among the “Dirty Dozen” List of Tax Scams for the 2015 Filing Season” which provides verbatim:

WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.

“The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 50,000 disclosures and we have collected more than $7 billion from this initiative alone.  The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs.  Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.

Through the years, offshore accounts have been used to lure taxpayers into scams and schemes.

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

RSS Comments:

  1. The IRS is not relenting in its search for those who still have unreported offshore bank accounts and income.
  2. It has expanded its field of view from Switzerland to other regions including the Middle East (Israel), Asia (India and Singapore) and the Bahamas (John Doe Summons issued to CIBC).
  3. IRS tentacles will continue to reach into more jurisdictions that in the past have harbored unreported accounts of U.S. citizens or residents.
  4. The likelihood of being discovered is growing as the IRS data-base grows and IRS is able to link up people and will grow yet faster as FATCA and tax-information sharing arrangements between countries are implemented.
  5. More can expect to receive letters from their offshore banks that names will be disclosed unless the account holders certify U.S. tax reporting compliance or entry into the OVDP.
  6. The penalties presently imposed in the OVDP (27.5 or 50% [for banks on the IRS published list of bad-actor banks] of highest aggregate balance during OVDP period) or outside of the OVDP (as high as 300% of account balance) are not likely to lessen as time goes by and the OVDP miscellaneous offshore penalty may increase yet again at some juncture.
  7. For all of the above reasons, those still out in the cold should contact a tax attorney experienced in OVDP submissions about how to come into compliance with the least risk of criminal sanctions and lowest possible financial pain.


Comments © 2015 by Robert S. Steinberg, Esquire All rights reserved

Posted in 214 OVDP, OFFSHORE BANK ACCOUNTS, TAX, VOLUNTARY DISCLOSURE | Tagged , , , , , , , | 1 Comment