Remember: “Failure to Report Offshore Funds Remains a Crime” – IRS

report offshore funds

With every increasing global travel and trade the IRS chose to remind everyone today that individuals considered to be U.S. Persons for U.S. tax filing purposes must report offshore funds and income derived from those funds.

Remember: “Failure to Report Offshore Funds Remains a Crime” – IRS

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As part of their annual Dirty dozen list, the IRS called out offshore schemes today.  Many of the scams on the dirty dozen list peak as people prepare their tax returns or seek assistance with filing their taxes.

The IRS has intensified efforts in recent years to identify offshore issues, and taxpayers should continue remain wary of offshore avoidance schemes. Through the OVDP and Streamlined Filing Procedures, many taxpayers have already come forward and disclosed their foreign interests.  In addition the IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. Criminal charges were also pursued by the IRS leading to billions of dollars in criminal fines and restitution.

“Offshore evasion remains a primary focal point of overall IRS enforcement efforts,” said IRS Commissioner Chuck Rettig. “Our Criminal Investigation and civil enforcement teams work closely with the Justice Department in the international arena to ensure our nation’s tax laws are followed. Taxpayers considering hiding funds or assets offshore should think twice; the civil penalties and criminal sanctions can be severe.”

Illegal scams like these can lead to significant penalties as well as interest and possible criminal prosecution depending on the circumstances surrounding the failure to disclose the foreign assets.

Hiding income offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. They then access the funds using debit cards, credit cards or wire transfers. Others have used 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 bankers and others suspected of helping clients hide their assets overseas.

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 fines, as well as the possibility of criminal prosecution.

The IRS reminds taxpayers who have failed to properly report their offshore investments or pay tax on these investments’ income, to come forward.  Since the circumstances of taxpayers vary widely, the IRS offers several options for addressing the noncompliance.

Third-party reporting

Under the Foreign Account Tax Compliance Act (FATCA) (often associated with form 8938) and the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting continues. The IRS receives more information regarding potential non-compliance by U.S. persons because of the Department of Justice’s Swiss Bank Program. This information makes it less likely that offshore financial accounts will go unnoticed by the IRS.

Penalties for failure to properly report offshore transactions can be severe. A summary of these potential penalties as well as a comparison of what must be reported on Form 8938, Statement of Specified Foreign Financial Assets, and the Report of Foreign Bank and Financial Accounts (FBAR) can be found on IRS.gov.

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