Hiding Assets In An Offshore Account?

Crooked tax preparers

Offshore accounts have been used to lure taxpayers into scams and schemes. According to the IRS, hiding money or assets in unreported offshore accounts remains on its annual list of tax scams.

Over the years, a number of 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.

Offshore Voluntary Disclosure Program (OVDP)

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and the IRS has collected more than $8 billion from this initiative alone.

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.

The IRS has also conducted thousands of offshore-related civil audits that have produced tens of millions of dollars and has pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

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.

With new foreign account reporting requirements being phased in over the next few years, hiding income offshore will be increasingly more difficult.

Third-Party Reporting

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and partner jurisdictions, automatic third-party account reporting began in 2015, making it less likely that offshore financial accounts will go unnoticed by the IRS.

Swiss Bank Program

In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that played a role in helping to facilitate past non-compliance.

As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

The IRS urges you to choose your tax professional carefully in response to reports from last year describing unscrupulous preparers. In some cases, these preparers were instructing their clients to make individual shared responsibility payments directly to that preparer. In some cases, this was happening even though the taxpayer had Medicaid or other health coverage. Under this circumstance, the taxpayer didn’t need to make the shared responsibility payment at all. In some parts of the country, unscrupulous return preparers were targeting taxpayers with limited English proficiency and, in particular, those who primarily speak Spanish

Most people don’t owe the payment at all because they have health coverage or qualify for a coverage exemption. However, if you owe a payment, remember that it should be made only with your tax return or in response to a letter from the IRS. The payment should never be made directly to an individual or return preparer.

Preparers who inappropriately ask for direct payment use a variety of invalid reasons that include:

  • •telling individuals that they must make an individual shared responsibility payment directly to the preparer because of their immigration status.
  • promising to lower the payment amount if the client pays it directly to the preparer.
  • demanding money from individuals who are exempt from the individual shared responsibility payment.

If you are not a U.S. citizen or national, and are not lawfully present in the United States, you are exempt from the individual shared responsibility provision and do not need to make a payment. For this purpose, an immigrant with Deferred Action for Childhood Arrivals (DACA) status is considered not lawfully present and therefore is exempt. You may qualify for this exemption even if you have a social security number.

If you believe you have been targeted by an unscrupulous preparer or you have been financially affected by a tax return preparer’s misconduct or improper tax preparation practices, you can report it to the IRS on Form 14157, Complaint: Tax Return Preparer.

You can use our Interactive Tax Assistant tool - Am I required to make an Individual Shared Responsibility Payment? to help determine if you qualify for an exemption or owe the payment.

Choose a Tax Preparer Carefully

The vast majority of tax professionals provide honest, high-quality service. However, the IRS encourages taxpayers to avoid dishonest and unscrupulous preparers by choosing their preparer wisely. To help, the IRS offers a new, online, searchable public directory of tax preparers who currently hold professional credentials recognized by the IRS or certain other qualifications.