From a United States perspective, the world of offshore banking changed in June 2008 when a former UBS banker pled guilty to helping clients evade U.S. reporting requirements. Since that time, the Internal Revenue Service (IRS) and U.S. Department of Justice (DOJ) have stepped up efforts to stem tax evasion by taxpayers who fail to disclose foreign bank accounts and other offshore investments. Investigations of foreign banks are ongoing and have broadened beyond Switzerland to presently include India, Israel, Panama and Hong Kong. The IRS Criminal Investigation Division now has a presence in 11 foreign countries and DOJ has indicted countless financial advisors, bankers, taxpayers and even a foreign bank for their roles in either evading or helping U.S. taxpayers avoid their tax obligations.
U.S. law requires taxpayers who own foreign assets, have a connection to foreign entities and who engage in foreign activities to report such assets, entities and activities to the IRS. Taxpayers who fail to file the appropriate informational forms risk being subjected to significant monetary penalties.
Take Action to Minimize Penalties
In response to the UBS ordeal, the IRS has launched three voluntary disclosure programs, the first in March 2009, and the most recent in January 2012, for taxpayers with undeclared foreign income and bank accounts. The current program, the IRS Offshore Voluntary Disclosure Program (VDP), grants taxpayers an opportunity to report their noncompliance while minimizing civil penalties and potentially avoiding criminal prosecution. Taxpayers should take note that while the terms of the three voluntary disclosure programs have remained relatively consistent, the penalties continue to increase. Notwithstanding, options beyond the VDP may exist.
Holland & Knight's Offshore Tax Compliance Team can walk taxpayers through their options. However, for those with unreported foreign accounts who fail to initiate contact with the IRS, they face certain IRS audits once the IRS identifies them, and possible criminal prosecution. Our Offshore Tax Compliance Team can once again provide help.
Compliance Requirements for Foreign Accounts
In addition to our experience with the voluntary disclosure program, our team counsels clients on the numerous compliance issues required by the Foreign Account Tax Compliance Act (FATCA).
Most recently, this includes Form 8938 which requires individuals who hold an interest in a specified foreign financial asset during the tax year to attach to their tax returns a statement reporting the required information if the aggregate value of the assets exceeds $50,000 or such higher threshold as the Secretary of the Treasury may determine.
FATCA was enacted in March 2010 as a revenue offset and is designed to deter the use of overseas tax havens for tax evasion through heightened disclosure requirements and increased penalties. We advise insurance companies, financial institutions, fund managers and individual taxpayers on their respective obligations under FATCA so they can achieve compliance and avoid costly penalties.
Global High Wealth Industry Group
Our Tax Controversy and Litigation Team, working in collaboration with our offshore compliance attorneys, assists taxpayers facing IRS audits by the Global High Wealth Industry Group, an IRS enforcement unit first announced in October 2009 to target the very wealthy who attempt to hide income through partnerships, offshore trusts and other complex techniques.
Defending Your Financial Transactions
Working in concert with the firm’s Financial Investigations Group, our Offshore Tax Compliance Team represents clients beyond traditional tax issues. We have vast experience defending accusations of structuring — the issue of transactions structured to avoid certain record keeping and reporting requirements, in violation of 31 U.S.C. § 5324. Structuring includes the act of parceling large financial transactions into smaller transactions to avoid scrutiny by regulators or law enforcement. Structuring often appears in federal indictments related to money laundering, fraud and other financial crimes. Similarly, we also advise, investigate and defend potential violations of the Foreign Corrupt Practices Act (FCPA), an area of increased emphasis for the U.S. government in recent years.
Members of our Offshore Tax Compliance Team represent taxpayers and will work with the IRS (and/or other governmental agencies) on your behalf to achieve the most favorable outcome possible. This may include requesting a reasonable cause exception or defending against a claim by the IRS of willful noncompliance.
Prevention is Key
While many taxpayers do not willfully fail to comply with the United States tax laws, the penalties for noncompliance are severe and the IRS's approach is to assess penalties first. We can educate you on your specific filing requirements so you can reduce costly penalties and achieve compliance while minimizing your tax obligations.
Your Authority on Offshore Tax Compliance
Our Offshore Tax Compliance Team has an in-depth understanding of the legal issues surrounding the IRS voluntary disclosure programs, Foreign Bank Account Reporting, Foreign Account Tax Compliance Act and foreign information reporting requirements, including Forms 3520, 3520A, 5471, 8865, 8938 to name a few of the most common. We are regularly quoted as an authority on IRS enforcement by national and international media. In addition, team members have lectured at seminars and conferences around the world on these issues and have drafted numerous articles on these topics.