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Should You Make a Voluntary Disclosure to the IRS if You Used an Offshore Shell Corp to Commit Fraud?

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Should You Make a Voluntary Disclosure to the IRS if You Used an Offshore Shell Corp to Commit Fraud?

Offshore shell corporations have long been associated with unethical or illegal activities. For some, offshore shell corps offered a way to commit fraud away from the grasp of the Internal Revenue Service. With the passing of the National Defense Authorization Act (NDAA), there is a slim chance that a person could get away with using a foreign shell corporation to engage in fraudulent activities. If you used an offshore shell corporation in a scheme to commit fraud, our California tax attorneys and CPAs could help you address this crime and hopefully mitigate the tax and criminal penalties that accompany it. The Tax Law Offices of David W. Klasing would like to explain why you should make a voluntary disclosure to the IRS for engaging in tax fraud with an offshore shell corp.

How Offshore Shell Corps are Used to Commit Fraud

A shell corporation is a business that is not established for the purpose of engaging in the normal functions of a company. For example, shell corps typically do not perform any of the following actions:

  • Employ workers
  • Create and sell items or services to consumers
  • Do not report any revenue

At the most, a shell corp may own a few assets and have a bank account attached to the company. To further evade regulation by the IRS and law enforcement agencies, shell companies may refrain from listing the name of the owner of the company. This could make it easier for the anonymous owner of the shell corp to launder money and engage in other illegal activities.

However, the United States has long seen the issues with offshore shell corps, and a provision of the NDAA was dedicated to regulating illegal acts committed by the owners of a shell corp.

How the NDAA Affects Offshore Shell Corps

The Corporate Transparency Act (CTA) is a provision in the National Defense Authorization Act that effectively eliminates offshore shell corporations from being formed. Specifically, the NDAA has a requirement where the owner of the corporation will have to submit the name of the company’s owner, their address, their date of birth, and a method of identification like a driver’s license.

Originally, many states did not require the owner of a shell corp to disclose who the true owner of the company is. This would allow criminals to name representatives or other companies as the owner. In some cases, the laws of some states would allow the owner to leave the owner column empty. Additionally, the NDAA not only applies to new companies but also applies retroactively to corporations and limited liability companies with anonymous owners.

Note that the NDAA does not affect every type of business structure. For instance, partnerships and trusts could be still created with an anonymous owner. As a result, a criminal could still launder money using these loopholes.

Why You Should Voluntary Disclose Offshore Shell Corp Fraud to the IRS

The commission of fraud using an offshore shell corporation is a serious offense that could land you in legal trouble with the IRS and law enforcement. The CTA has listed examples of actions that would break the law under this provision:

  • Purposely using or attempting to use fraudulent information regarding the identity of the offshore shell corp owner (e.g., submitting incorrect identification)
  • Refusing to update ownership information of an offshore shell corp

There are multiple penalties that could be assessed to a person for failing to comply with CTA requirements. For instance, a violator may have to pay a maximum fine of $10,000. It is also possible that the offender may face criminal charges. The offender could be sentenced to a maximum of three years in prison. In some cases, a fine and a criminal charge may be imposed on the offender.

Note that offshore shell corp crimes will not be punishable by fines or criminal penalties if the offender negligently committed the mistake. For example, if the owner of the corporation cooperates with the IRS or law enforcement and shows they had no intention to commit fraud, they could avoid criminal charges.

Additionally, if you did commit fraudulent activity using an offshore shell corp, it would be prudent to get ahead of the situation quickly. Informing the IRS of your illicit activity could help you in a variety of ways. For example, you may be able to negotiate with the IRS to pay back taxes on money that was hidden in a shell corporation.

Also, it may be possible to avoid severe criminal penalties by cooperating with law enforcement. As this regulation is still new, there is still much that taxpayers may not completely understand. Our legal team will work diligently to give you the information you need to get a desirable outcome after voluntarily disclosing offshore shell corp fraud.

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Call Our IRS Offshore Shell Corp Fraud Attorneys to Assist with Your Voluntary Disclosure

If you illegally utilized an offshore shell corporation to shield your earnings from the IRS, contact our California tax lawyers and CPAs to gain legal guidance on how to handle this problem. Our firm has amassed years of experience handling foreign tax matters, and this experience could be used to address your offshore shell corp tax troubles. To make an appointment regarding your violations of the IRS tax code, call us at (800) 681-1295. More information about consultations is available on our website.

Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!