October 2009 Archives

Offshore Tax Havens, Tax Fraud and Senator Carl Levin

October 5, 2009,

I lifted my nose up from filing Foreign Bank Account Reports (FBARs), talking to clients with offshore financial accounts, and filing for tax amnesty under the IRS Offshore Voluntary Disclosure program long enough to notice a speech that Senator Carl Levin had given in mid-September on the topic of offshore tax havens. Senator Levin has been battling against tax fraud committed through the use of offshore financial accounts for many years, and in the last year or two his ideas have been gaining more traction. The text of his speech is available here. A few highlights are worth repeating:

• Liechtenstein and Switzerland have reversed decades of resistance and agreed to enter into Tax Information Exchange Agreements in line with the model agreement developed by the Organization for Economic Cooperation and Development (OECD). Both countries have already initialed such agreements with the United States and other countries.

• G-20 leaders signaled a new willingness to take action against uncooperative tax havens, the changes made by Liechtenstein and Switzerland set off a chain reaction in other bank-secrecy nations. Places like Luxembourg, Austria, Andorra, Monaco, and others also pledged for the first time to share tax information and cooperate with international tax enforcement

• Offshore tax abuse needs to be taken into account when developing international trade policy. Specifically, there ought to be a policy against rewarding trading partners that refuse to adopt the growing global consensus against tax evasion. The nation of Panama, for example, hopes to conclude a free trade agreement with the United States in the near future. But at the same time, after pledging in 2002 to negotiate a tax information exchange agreement with the United States, Panama is stonewalling. The United States should insist that Panama and other nations agree to tax information sharing before extending to them the advantages of a free-trade agreement.

Clearly the pressure is mounting on secrecy jurisdictions, and as I have said before whether your offshore account information will find its way to the IRS immediately is unknown, and unknowable. Nevertheless the handwriting is on the wall, and in five or ten years from now the ability to commit tax fraud by hiding funds in an offshore bank account will probably be a quaint curiosity that you can tell your grandchildren about.

In the meantime, if you have offshore financial accounts you have less than two weeks, until Oct. 15th, to enter the IRS tax amnesty program.

If you would like advice and assistance from our former IRS tax lawyers call Brager Tax Law Group, A P.C. to arrange a consultation.

IRS FBAR Tax Amnesty is a Good Gamble (Part II)

October 1, 2009,

Yesterday I started a blog post subtitled Why 70% of a Foreign Bank Account Is Better Than 100% of No Foreign Bank Account. It included three reasons why, if you have offshore financial accounts, filing for tax amnesty by the Oct. 15th may be a good idea. It doesn’t matter if your offshore bank account is at UBS, or some other foreign financial institution. Today I have listed three more reasons:

1. Legally “Launder” Your Offshore Funds.

If your money is an offshore financial account it is difficult to spend in the United States. Banks keep copies of offshore wire transfers, and are required to report suspicious transactions to the Internal Revenue Service (IRS). If you bring cash back to the United States in excess of $10,000 you must declare it. Over the years people have come up with many methods of bringing the money back to the U.S., including credit cards tied to their offshore bank accounts—some have gone to jail. Any actions to hide the existence of the foreign bank accounts, e.g. moving them one from one country to another, or investing the funds in offshore real estate to avoid the reporting requirements could be construed as money laundering subjecting you to further criminal penalties.

If you participate in the offshore tax amnesty program you will then be able to bring the money back to the U.S., and enjoy the fruits of your labors. Or if you wish, you can continue to invest it abroad—it’s your choice.

2. Avoid Passing Along Your Tax Problems When You Die

No one lives forever. If you continue to have foreign financial accounts when you pass on you will bequeath all of your tax problems to your children and your spouse. For example, the foreign bank accounts must be declared on your estate tax return. Leave them off, and your executor has committed tax fraud. Put them on the return, and expose the estate to years of back FBAR penalties at the 50% rate, potentially wiping out your entire legacy. In addition, if your children and/or spouse become owners of your foreign bank accounts upon your death they will now have to report those foreign bank accounts, or face the same set of tax problems that you have now.

3. Sleep Better At Night

The one question that clients ask most frequently is “What are the chances I will get caught?” It is also the one question I can’t answer. The IRS has promised to devote significant resources to finding everyone who has an offshore financial account. I can safely say they won’t. Whether or not you will get caught no one knows. Nevertheless, the potential consequences of getting caught are so severe you have to ask yourself is it worth even a 5% chance of going to jail and losing everything to save some money. My answer is “no.”

Your answer may differ, but you need to think about it, and have an answer before October 15th. After all, who would have thought five years ago that almost 5,000 people who had been made promises of iron clad secrecy by the Swiss would now have their foreign bank accounts turned over to the IRS?

If you have a foreign financial account, and would like to discuss your situation with our former IRS tax attorneys please contact the Brager Tax Law Group, A P.C.