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International Criminal Tax Investigation Defense - IRS, DOJ, and DOT

International Criminal Tax Investigation Defense – IRS, DOJ, and DOT

International Criminal Tax Investigations can have very serious consequences, including outstanding taxes, liens, levies, penalties, fines and imprisonment.

Criminal Tax Investigations

If you have been contacted by the IRS Special Agents, Department of Justice or District Attorney’s office involving a criminal tax matter, it is important that you do not speak with the investigators and retain an attorney, since anything you say will be used against you!

Criminal Tax Investigations can have very serious repercussions, and you should always be represented by an experienced Criminal Tax Defense Lawyer. 

Unlike a civil tax audit in which the only issue a taxpayer has to worry about is whether he or she will be assessed any taxes, penalties, and/or interest…a criminal tax investigation can result in money, fines, and imprisonment.

Some of the most common types of tax crimes are as follows:

  • Administrative Criminal Hearings
  • IRS Special Agent Investigations
  • Tax Evasion
  • Tax Fraud
  • International Tax Crime
  • White Collar Crime Defense

Criminal Tax – Fraud & Evasion

When a person has offshore or foreign accounts, the chances of getting into tax and criminal trouble increase exponentially. Why? Because under new foreign account reporting laws and regulations (FATCA), it is much easier to get caught in the US government’s web, which is designed to catch, investigate and prosecute U.S. Taxpayers (U.S. Citizens, Legal Permanent Residents, Foreign Nationals Subject to U.S. Tax)

Under FATCA (Foreign Account Tax Compliance Act) more than 100 countries and hundreds of thousands of Foreign Financial Institutions (FFIs) have agreed to reciprocate financial information of US taxpayers to the United States Government and vice versa by the IRS to foreign countries.

To give you an idea of how your chances of being caught have significantly increased, all you have to do is refer to the list of banks and foreign financial institutions that have agreed to report taxpayer information to the United States. The list can be found here.

In addition, the United States has already identified upwards of 140+ foreign financial institutions that have been known to assist taxpayers with committing tax fraud. If you happen to bank or maintain accounts with any of these institutions (aka “Bad Banks”) and have unreported accounts, it is in your best interest to contact an experienced offshore tax attorney to assist you with getting into compliance before it is too late. This list is updated often but the current list as of July 2016 can be found by clicking here.

Criminal Tax Investigations 

The United States takes tax enforcement very seriously – and the stakes are raised when it involves overseas and foreign income. Each year, the IRS publishes the dirty dozen tax scams that ranks high as in force in priority, and offshore tax is a mainstay.

Further, the Department of Justice has initiated an Offshore Compliance initiative, designed to hunt down and prosecute tax invaders using offshore and overseas institutions to facilitate fraud. A link to information regarding this initiative can be found by clicking here.

What are your options?

If you have already been contacted by the Department of Justice, Department of Treasury, or the Internal Revenue Service, it is absolutely crucial that you do not speak with them directly. Government agencies are known to be sneaky, and they may not tell you that you are the subject of a criminal investigation. As a result, anything you say can and will be used against you.

You may think you are helping your case by trying to talk your way out of a potential criminal investigation, chances are you are digging yourself deeper into a hole. All you have to do is watch any episode of 48 hours or other criminal broadcast to see the benefit of having an attorney assist you during any investigation by a criminal or quasi criminal authority.

Does the IRS Prosecute U.S. Taxpayers?

Yes. The reason why the US government has placed such a priority on international tax enforcement is due to the billions of dollars of lost taxes the US government misses out on due to international tax fraud and tax evasion.

In fact, the U.S. Government has developed specific programs that are specifically designed to combat offshore tax evasion and tax fraud.

Swiss Bank Program

For example, in 2013 the government created the Swiss bank program, which as provided by the DOJ “The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Terrorist Financing and Financial Crimes

As the policy development and outreach office for TFI, the Office of Terrorist Financing and Financial Crimes (TFFC) works across all elements of the national security community – including the law enforcement, regulatory, policy, diplomatic and intelligence communities – and with the private sector and foreign governments to identify and address the threats presented by all forms of illicit finance to the international financial system.

TFFC advances this mission by developing initiatives and strategies to deploy the full range of financial authorities to combat money laundering, terrorist financing, WMD proliferation, and other criminal and illicit activities both at home and abroad. These include not only systemic initiatives to enhance the transparency of the international financial system, but also threat-specific strategies and initiatives to apply and implement targeted financial measures to the full range of national security threats. Primary examples of these roles in advancing this mission is TFFC’s leadership of the U.S. Government delegation to the Financial Action Task Force, which has developed leading global standards for combating money laundering and terrorist financing and its role in specific efforts to counter threats like proliferation, terrorism and the deceptive financial practices of Iran.

Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments. 

FinCEN (Financial Crimes Enforcement Network)

This statute establishes FinCEN as a bureau within the Treasury Department and describes FinCEN’s duties and powers to include:

  • Maintaining a government-wide data access service with a range of financial transactions information
  • Analysis and dissemination of information in support of law enforcement investigatory professionals at the Federal, State, Local, and International levels
  • Determine emerging trends and methods in money laundering and other financial crimes
  • Serve as the Financial Intelligence Unit of the United States
  • Carry out other delegated regulatory responsibilities

**Authorities Delegated to FinCEN pursuant to TREASURY ORDER 180-01 

This Treasury Order describes FinCEN’s responsibilities to implement, administer, and enforce compliance with the authorities contained in what is commonly known as the “Bank Secrecy Act.”

OVDP – FAQ About Getting into Compliance

If you are willful (in other words, you knew you were supposed to report and disclose your foreign account and income information but failed to do so), OVDP may be your best option to get into compliance before it’s too late. By too late, it means if you are indicted, investigated or audited chances are you lose the right to submit to OVDP.

Consider Being Proactive with Voluntary Disclosure

If you knowingly failed to report your offshore or domestic earnings and Income to the IRS, you should consider entering OVDP or the Domestic Voluntary Disclosure Program. The following is a reproduction of our very popular “OVDP – FAQ From the Trenches by Golding & Golding”

                             

OVDP FAQ

We have put together a basic summary of key issues applicants should consider when they are considering entering the Offshore Voluntary Disclosure Program. While the IRS has its own set of FAQsthey are focused more on the technicalities of qualifying for the program. Our summary will provide you more of the “ins and outs” of the actual application for individuals who are unsure of which accounts should be reported, and how entering OVDP can impact their legal status — and freedom.

In the end, if you were willful and you have foreign accounts that are unreported (especially if you are in a FATCA Agreement Country) or bank with a FFI (Foreign Financial Institution) that is reporting (and even more so if your money is in a Bad Bank), you should consider retaining an experienced OVDP lawyer and entering the program.

      

Can My Immigration Status Be Impacted by OVDP?

Yes, depending on your current status and future intended U.S. legal status, an OVDP application may have an impact. Under some circumstances it may hurt your status, and under other circumstances it may actually benefit your status.

Applying for Citizenship

Your immigration status can be impacted for several reasons. As a general answer, your immigration status can be impacted due to the “willfulness” presumed by applying for OVDP. When a person enters OVDP (as opposed to the IRS Streamlined Program), they are acknowledging that they were willful and/or intended to evade tax.

Therefore, if you are a Legal Permanent Resident or other Visa holder, there is the concern that if you want to apply for Legal Permanent Residence Status (“Green Card”) or U.S. Citizenship, when you are completing your N-400 form and it asks whether you have ever committed a crime, you would have to include the tax issues as a crime. Technically, willfully and/or knowingly not reporting your foreign accounts is a form of tax fraud and tax evasion.

Deportation or Removal

If you are applying for OVDP and you are granted admission into the program, chances are you will not be criminally prosecuted and therefore you would not be deported or removed if your Foreign Bank reports you and the information makes it way to the USCIS. Moreover, once your OVDP application is complete and you are approved (and you submit the OVDP closing letter) it may facilitate obtaining citizenship if that is the endgame you are seeking.

*If you are rejected for OVDP, it could lead to Deportation or Removal, but that is a fact-based analysis depending on the specific circumstances of your case.

My Spouse Does not Want to Enter OVDP

It does not take two to tango when it involves OVDP. The IRS is more than willing to accept a one person OVDP application. Even if your prior tax returns were submitted married filing jointly MFJ, it does not change the fact that one spouse (or one former spouse) has the ability to submit to the program, even if the other spouse will not comply.

It is a much more complicated process, but if you happen to be married to a tax fraud then it is probably in your best interest to consider entering the program while making a dual application for Innocent Spouse as opposed to playing the wait-and-see game for two reasons:

  1. You never know when the IRS is going to strike – and that can have a major impact on your financial status; and
  2. You never know how sneaky your spouse, and especially a prior spouse may be – and the first person to go to the IRS usually gets the best deal (aka “first to squeal, gets the deal“)

We are Divorced, Not on Speaking terms and filed Tax Returns Jointly

Again, the IRS does not care if you are no longer married and the prior spouse will not cooperate. If you want to go into the IRS and disclose these accounts — then you have every right to do so.

If you were unaware of your spouse’s foreign assets during the marriage, and/or were unaware of the requirement to report the assets, and/or the money was not yours, then there are other options you may consider before making a full OVDP application.

**Before making any affirmative representation to the IRS you should consider speaking with an experienced OVDP Lawyer.

There is No Passive Income Tax in The Country with My Accounts

Unlike nearly every other country on the planet, the United States taxes US citizens, Legal Permanent Residents and Foreign Nationals Subject to U.S. Tax (Substantial Presence Test) on their worldwide income – despite where they are residing when the income is earned. Thus, merely because you may have your money in Singapore, Taiwan, Hong Kong or another country that does not tax interest income, it does not mean that the United States loses its chance to tax your money.

Since your worldwide income is subject to US tax, you are required to report these accounts as well as pay income tax on the earnings. Some common forms are Schedule B, 8938 and FBAR.

The Unreported Money does not belong to me?

In many countries, it is not uncommon to have children listed on the financial accounts of the parents – even though the children ”really” have no right to the money. The United States understands this concept and therefore created a different program for non-willful individuals, which is called the Streamlined Program. Moreover, since none of the money belongs to you, you should be able to waive any penalty that would otherwise have been levied against you.

My Business Never Reported Foreign Accounts

Under U.S. law, as long as the business accounts meet certain threshold requirements (more than $10,000), you are required to report these accounts on your annual FBAR (Report of Foreign Bank and Financial Account Statements). It does not matter that the accounts are being held under business account name. If you are an owner of the business and have access to the money, then technically you are supposed to report these accounts to the United States.

My Business is Held as a Foreign Holding Corporation

The IRS knows all of your tricks. Whether your money is being held in a foreign corporation, a foreign holding Corporation, a British Virgin Islands company (BVI), a Cayman Islands company, a Maltese company – it does not matter. If the foreign financial institution where you hold the bank accounts has a US address or any information regarding the US owner on the account on file, chances are that under FATCA, the financial institution is going to err on the side of caution and report the account. 

The Business is not Under my Name

Depending on how sophisticated your foreign business and tax planning was, you may have foreign corporations that are not under your name, but to which you have signature or other authority over accounts at the bank – which are under the name of the business. Due to the global priority of promoting “financial transparency” in accordance with FATCA and CRS (Common Reporting Standards)there is a significanrtly increased chance that the corporate veil will be lifted and you will be exposed.

I did not report my Foreign Retirement Account

You are required to report your foreign retirement accounts (some restrictions apply, but it is better to not leave anything to chance). When it comes to foreign retirement accounts, it can get a little more tricky because if the retirement account was a US 401(k) then chances are you would receive deferred tax treatment. Thus, if you did not receive any benefits from the foreign retirement account (especially any withdrawals) then you may not have been willful by not reporting the account. This is because it is understandable to think you would not have to report a foreign retirement account until any distributions were made to you.

***You should speak with an experienced OVDP lawyer on this issue.

I received a FATCA Letter, What Should I do?

If you received a FATCA letter from your foreign bank, then you really need to take action. That is because the bank is waiting for you to reply to both confirm compliance with IRS tax law, as well as indicate whether you qualify for a W-9 or W-8 BEN.

If you are a US taxpayer then you will have to complete the W-9, which means you will be subject to IRS tax reporting, And, if the bank or foreign financial institution sends the information to the IRS and they contact you before you have a chance to enter the program, the chances of you being subject the very stiff penalties skyrockets.

Only a Small Amount of money is in a Bad Bank, is All my Money subject to a 50% Penalty

Yes. At the current time, the IRS will not distinguish between the money you have in “Safe Banks”  versus the money you have in banks identified as “facilitator banks” aka “Bad Banks.” Therefore, if you have any of your money in one of these bad banks, then before entering OVDP it is important that you determine whether you were actually willful (50% penalty applies) for non-willful (50% penalty does not apply).

Stated another way, just because you have money in a bad bank does not mean your entire offshore balance is subject to the 50% penalty; you must also be willful. Why? Because a person could be non-willful and still have their money in one of these bad banks — and that should not make them subject to a 50% penalty.

I Sold Foreign Property and Transferred Money into a Foreign Bank Account

The money that resulted from the sale will be included in the penalty calculation, if after you sold the home and placed the funds into a foreign bank account — you did not report the account.

Unreported Income from a Foreign Rental Property

If you have unreported foreign rental income from a home or property and you enter OVDP vs. the Streamlined Program, the value of the home is included in the penalty structure – subject to any mortgage that is due and owing on the home. The same rule does not apply to streamlined program applications (e.g., the value of the unreported income generating real estate is not included in the penalty computation).

What if I have an Unreported Foreign Gift (Form 3520)?

If you failed to report a gift from a foreign person, foreign business or trust distribution, it may be subject to a penalty unless you properly disclose it in accordance with amending your tax returns under OVDP. For more information about Foreign Gifts, please Click Here.

What if I Failed to Report a Foreign Trust (Form 3520-A)?

The U.S. Tax Code is stacked against Foreign Trusts. In other words, the failure to properly your foreign trust on a form 3520-A can lead to significant fines and penalties (as the U.S. Government may see it as your attempt to shelter money offshore in a Foreign Trust). To learn more about Foreign Trust Reporting, Please Click Here.

What if I Never Reported my Foreign Business Interest (Form 5471)

In order to avoid the problem of U.S. Taxpayers sheltering money offshore in foreign business (and not reporting the earnings), the IRS takes a hardline against individuals with unreported Foreign Business Interest. For individuals required to file form 5471, the failure to filing the form can lead to penalties upwards of $50,000 per return and the returns are due annually. To learn more about reporting your Interest in a Foreign Business, please Click Here.

I have a PFIC and/or Foreign Mutual Fund that I never Reported (Form 8621)?

The IRS reserves the most complicated and complex tax computation for the infamous “PFIC aka Passive Foreign Investment Company.” Moreover, the IRS essentially deemed that all Foreign Mutual Funds fall under the PFIC umbrella. Therefore, that Foreign Mutual Fund you purchased offshore that is accruing and/or distributing Interest or Dividends may be subject to a monster tax analysis — especially if it qualifies as issuing an “Excess Distribution.” For a comprehensive analysis of PFIC 8621 reporting, please Click Here.

I Opened and Closed Accounts Several Bank Accounts 

The most important thing to keep in mind is that the same money is not counted twice. Thus, it is very important to make sure the duplicity of account money issue is properly vetted on the application, so that the IRS is aware and understands the transfers.

I Submitted a Previous Quiet Disclosure, Can I Really Still Enter OVDP?

Yes. There are some people who may have submitted a “Quiet Disclosure” because they were unaware of the whole OVDP process, or though they could just amend the tax return late and file late FBAR statements.

What is GATCA/CRS?

CRS is the Common Reporting Standard, which is otherwise known as GATCA (Global Account Tax Compliance). The OECD has developed a new reporting standard in the shadow of FATCA to facilitate global tax compliance on an international scale. Therefore, chances are no matter how you set up your foreign accounts and in which country you are operating in — at some point or another one of the foreign financial institutions is going to report you.

What does “Under Examination” mean?

Leave it to the IRS to keep one of the most important aspects of qualifying for OVDP a nebulous uncertainty. Under examination generally means that you are either in an audit, or otherwise being questioned about your financial information by the IRS. To that end, depending on when you were contacted, how you were contacted, what information the auditor did or did not ask, the facts and circumstances surrounding your particular case, and many other concepts that can make your head spin – you may still be able to enter the program (depending on what stage of inquiry you received from the IRS).

Can I enter the Streamlined Program First to See if I am Willful/Non-Willful?

No. You only get one chance at this, so it is important that you really evaluate the facts and circumstances around your failure to report, in order to determine whether you were willful or non-willful. While technically, there is no way to know whether you are willful – you just have to know.

By speaking with an experienced OVDP Lawyer you may be able to get a better idea of whether you were willful or non-willful.