On this blog, we have long warned taxpayers that keeping secret offshore accounts was no longer a viable tax strategy. In fact, keeping secret foreign accounts that are not disclosed as part of one’s income tax return filing, Report of Foreign Bank Account (FBAR), or Foreign Account Tax Compliance Act (FATCA) can lead to harsh monetary and other penalties. When IRS agents or prosecutors from the Department of Justice believe that disclosure failures are voluntary or intentional, even harsher penalties up to and including a federal prison sentence can be ordered.
If you have an offshore account or other tax concerns, you may be able to mitigate or eliminate penalties through the OVDP or Streamlined Disclosure Programs. However, it is prudent to work with an experienced tax lawyer because a botched voluntary disclosure can exacerbate the problems you face. To schedule a reduced rate initial consultation, please call the Tax Law Offices of David W. Klasing at 800-681-1295 today.
Joyce Meads’ was the owner of oil interests via a gift she received from her parents. The stake in oil interests was apparently rather profitable and returned reasonable income annually. From roughly 1997 to 2009, the oil well produced a total of $1.3 million in income – equaling roughly $100,000 of income, on average, per year.
Unfortunately, during this period, Ms. Meads took steps to conceal this income from the IRS and other tax authorities. Meads worked with offshore tax shelter promoters who likely sold Meads on the approach by promising some combination of asset protection, becoming “judgment proof,” and avoiding taxes. Unfortunately, many tax shelter promoters neglect to tell potential clients that the use of paper shell entities to avoid income tax obligations and offshore tax reporting duties is illegal. Furthermore, they also often neglect to mention that due to the information sharing provisions of FATCA, attempting to keep accounts secret is no longer viable.
Working with offshore promoters, Meads set-up both domestic and foreign nominee companies. She transferred her interest in the oil wells to a Delaware shell corporation in the name of W G Holdings Corp. She arranged to have the royalty checks sent to a P.O box in Miami. Upon receipt in Miami, the checks were transported to Panama where they were deposited into a Panamanian bank account.
When Meads needed to repatriate the funds, she apparently utilized at least several strategies. In some instances, she would disguise the money as scholarships. In other instances, she would disguise the assets as personal loans extended by W G holdings. She would then transfer the funds to her mother’s bank account or to her own bank account.
Meads admitted that she filed false individual income tax returns from 1997 through 2009. In all, her actions concealed more than $1.3 million in income which resulted in a tax loss of approximately $250,000. She recently pleaded guilty to one count of conspiring to defraud the United States. When she faces sentencing she could face up to five years in prison followed by three years of supervised release and additional consequences.
For years, prior to roughly the mid-2000s, taxpayers may have felt some sense of security keeping secret offshore accounts even if the practice was — as it is now — illegal. However, following the Great Recession, Congress turned its attention to closing the “tax gap.” One of the largest identified causes for the “tax gap” was offshore tax evasion by wealthy Americans.
As such, Congress increased FBAR penalties and created a penalty for even accidental violations of the offshore disclosure law. Congress also passed an additional foreign disclosure law known as FATCA. As part of the implementation of the law, the U.S. government negotiated and signed international governmental agreements (IGAs) with nations throughout the world. More than 100 IGAs that permit the sharing of tax and financial account details across national borders means that no foreign account can ever truly be considered secret. Due to FATCA and its IGAs, the risk that the IRS will discover your undisclosed foreign accounts cannot be understated.
If you are worried about offshore account mistakes and other tax errors, you have already taken the first step towards coming back into compliance with the U.S. Tax Code. However, it is important to note that tax and foreign disclosure problems will not get better on their own. Rather, taxpayers who fail to address small tax problems may find their lack of action interpreted as intent to commit tax evasion or obstruct the administration of the Internal Revenue Code. The tax attorneys of the Tax Law Offices of David W. Klasing can explore voluntary disclosure options to mitigate the consequence you face. To schedule a confidential, reduced rate consultation please call our Irvine or Los Angeles law offices at 800-681-1295 or schedule online today.
Here is a link to our YouTube channel: Click Here.
Here is a link to our practice overview video on foreign income and information non-compliance.