Undisclosed Foreign Accounts & the Tax Gap
March 27, 2014
FATCA and FBAR Reporting & Seven Practical Implications
March 27, 2014

Is the U.S. Government Becoming Lenient on Foreign Tax Compliance?

Date: 04/05/12

Topic: Foreign Accounts

When the government decides to reduce, as it has (by thirty percent), the number of its investigators assigned to fighting tax fraud involving foreign accounts, it may be tempting to think the government isn’t so interested in cracking down on foreign tax fraud, after all. This temptation, however, should be resisted.

The IRS continues to pursue foreign bank clients, and the present Administration is still very much interested in enforcing tax-compliance. The present downsize appears temporary. Charles Miller, who is the spokesperson for the U.S. Department of Justice, more or less dismissed as insignificant the taskforce reduction. Swissinfo.ch quotes him saying, “This move doesn’t mean anything in particular, it’s a temporary situation until sometime in September when those prosecutors will come back here to Washington.” Source: http://www.swissinfo.ch/eng/politics/No_let-up_in_US_fight_against_tax_evasion.html?cid=32420442&rss=true).

The reduction in personnel would be significant if it were a political move, but since the reduction appears instead to be a financial one, it cannot be affirmed that the government’s interest in pursuing tax fraud and tax evaders is somehow diminished.

Perhaps because foreign banks, like the Swiss, continue to disclose to the IRS clients engaged in tax fraud explains why the IRS may make these temporary reductions in its investigation unit. Thus, while the Swiss maintain a quasi-clandestine banking services, that should not mean it tolerates money-laundering or tax fraud. For example, Kaspar Villiger, the head of Swiss bank UBS, reported, “The confidentiality of banking should never be an instrument for abuse, tax fraud or criminal activities.” (For more information on Swiss banks diminishing their confidentiality treatment, reference our earlier blog entry, here: Voluntary Disclosures Program & Swiss Accounts )

Villiger’s quote should cause pause in the person hoping to use Swiss or other foreign accounts as a safe haven for money-laundering, tax fraud, or FBAR non-compliance. (For more on FBAR compliance, see our Q&A page: FBAR Compliance and Disclosure FAQ )

Failing to comply with the FBAR or FATCA reporting duties will likely result in significant penalties. If you have not satisfied these duties, there are still some options open to you; consider the four mentioned on this page (see “Taxpayer Options”)

What makes non-disclosure so serious is that it is self-perpetuating: once it is done once, to cover the prior fraud, it must be repeated again. Unfortunately, this is precisely the sort of evidence that helps make for a “slam dunk” case when the IRS’s Criminal Investigation Division (CID) is handed the case for criminal prosecution. To get out of this cyclic pattern, one of your existing options is likely to make a “voluntary disclosure” to the IRS of the amount not reported. For more on this important concept, read: Tax Evasion Fraud Representation, this is something our office can help you with.

If you are hiding assets overseas and not reporting them to the IRS on your tax returns–if you are losing sleep at night because of the very real fear of prosecution–contact us before the IRS discovers what you’ve done. We can help.