International Tax Investigation
International Tax Investigation: When a U.S. person has unreported income or undisclosed foreign accounts, assets or investments, they are at an increased risk of IRS fines and penalties. Over the last 10-15 years, the Internal Revenue Service has made foreign accounts compliance and key enforcement priority. With the introduction of FATCA (Foreign Account Tax Compliance Act) and renewed interest in the FBAR (Foreign Bank and Financial Account Reporting) aka FinCEN Form 114, taxpayers are an easy target. While Taxpayers were previously able to hide money offshore, that is no longer a viable option.
International Criminal Tax Investigations can have very serious consequences, including outstanding taxes, liens, levies, penalties, fines and imprisonment.
We will summarize International Tax Investigation for you.
Civil Tax Investigation
When a person is initially contacted by the IRS for offshore matters, it is generally in regard to a civil violations. Common issues, include:
- International Tax Audit or Examination
- FBAR Audit
- FATCA Audit
- CP15 Penalty Notices
- Special Agent Investigation
- Offshore Tax Fraud
- False Expatriation Filing
Whether the Taxpayer is being investigated under a regular audit scenario and/or is being audited under a more sinister eggshell or reverse eggshell audit, the stakes are high.
If the Internal Revenue Service believes the Taxpayer acted willfully, the penalties can reach upwards of 75% of tax liability and 50% of the maximum balance of unreported accounts, investments or assets, with a minimum of $100,000 annual penalty (adjusted for inflation).
IRS Offshore Criminal Tax
An IRS offshore criminal tax investigation is much more serious.
The taxpayer may be subject to excessive fines and penalties, in addition to an indictment and possible jail or prison sentence.
A criminal tax investigation typically kicks into gear when the individual has been visited by the Special Agents — who represent the criminal faction of the IRS.
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
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!
Offshore Tax Fraud & Evasion
International Tax Investigations for Offshore Tax Fraud and Evasion is on the rise, especially with issues involving:
- IRC 965 Retained Income Compliance; and
- Cyrptocurrency (Bitcoin) Compliance
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 110 countries and 300,000 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.
The Foreign Bank 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.
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.
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.”
Offshore Violation Penalties
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Penalties for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The failure to file each one of these information returns or for filing an incomplete return, is a penalty the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty starts at $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 926
An unfiled form may lead to a penalty that is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm for assistance with getting compliant.