IRS Special Agent – IRS Offshore Money | 3 Examples of Whistleblowing
IRS Special Agent – 3 Examples of How the IRS Finds your Offshore Money.
IRS Special Agents
The IRS Special Agents are specially trained IRS Agents who typically focus their investigations on Criminal Tax related issues.
And, with Offshore Tax issues remaining an IRS Top Enforcement Priority, it is important to understand what to do if you have unreported foreign accounts, income, or assets – and the IRS Special Agents come knocking at your door. (Or otherwise want to try to ruin your day…)
Important “Special Agent” Terms
IRS Criminal Investigation
Just because the IRS Special Agents are investigating you, does not mean you have been charged with a crime. An Investigation precedes a crime and just because you are investigated does not mean you will be charged or indicted.
Tax Fraud or Tax Evasion
Knowingly or willfully evading or avoid tax by either making false misrepresentations, underreporting income, or overstating deductions.
Offshore refers to money outside of the United States. Analogous terms include: Foreign Money, Money Abroad, or Overseas Money.
IRS Offshore Voluntary Disclosure
A legal and IRS approved means for proactively getting into compliance for unreported income, accounts, assets, investments or retirement.
It is very important to understand that if a Special Agent from the Internal Revenue Service ever comes to your house, you should tell the Special Agent that you will have an attorney contact him or her — and ask for them to leave their card. Even if they refuse to leave you are not required to speak with the IRS Special Agents outside of the presence of an attorney
*Under no circumstance should you ever speak with a special agent outside the presence of your counsel.
Who are the Special Agents?
The special agents are a “Specially Trained” unit of the Internal Revenue Service. They are part of the Criminal Investigation Department, and their goal is to investigate facts and circumstances which they believe are criminal.
The Internal Revenue Service is operating at around 20 to 25% capacity. In other words, they are low on staff.
As such, you can believe that the IRS is not going to dispatch special agents to your house just for a simple inquiry. Rather, they must have received some Intel, or other damaging information alluding to the fact that you, or your business is conducting business illegally.
How the IRS Learns About Your Mis-Dealings?
Here are a few examples of common scenarios we have dealt with over the years:
Scott and His Girlfriend
Scott has been earning illegal income and then laundering the money by investing into legitimate businesses. Scott is a happily married man businesses but also has a girlfriend on the side. Scott told his girlfriend one day he would leave his family, and start a new life with her – but as the old story goes, he is concerned that he will lose visitation with his children and decides to cut the relationship off.
As you can imagine, Scott’s girlfriend is not happy and her friends tell her about the whistleblower program. Scott’s girlfriend decides she is going to contact the Internal Revenue Service an attempt to get Scott indicted so that she can recover a substantial windfall of money through the whistleblower program.
Michelle Was Not Very Nice to her Staff
Michelle had a side business in which she would receive investments from overseas an investment United States to purchase products. Over time, Michelle learned the money she was receiving was illegally sourced, and that in reality she was was acting as a middle-person in illegal dealings.
Michelle has a few employees that work for her and help her with her day-to-day activities. Michelle does not take good care of her employees and is not very nice to them. One day, she takes it a bit too far and embarrasses an employee in front of the rest of the staff.
The employee goes home that day upset and speaks with his wife. His wife recommends that he contact Internal Revenue Service so that he can report the owner to the IRS…and she can get what’s coming to her.
Peter’s Business Partner Feels Slighted
Peter was a very shrewd businessman, with a strong a A-type of personality. Peter ran a successful business, which included clients who Peter knew was investing illegal funds with him. As such, Peter charged substantial fees to act as as “investment advisor.”
Peter’s partner worked with Peter to build the business from the ground up. But, when the business became very successful, Peter began to hoard the money — feeling as if he deserved a much bigger share in the profits. Peter’s partner did not feel the same way, and would rather bring them both down then to fight with Peter; his solution was to contact the IRS.
Why Do Special Agents Come to my House Unannounced?
The same reason why you make an appointment before you go somewhere. Because, if you do not make an appointment then the person will not be expecting you and will be unprepared.
That is what the IRS Special Agent’s hoping for. He or she is hoping that you are both unprepared and scared (and never watched 48 hours) and willing to talk to them on the spot outside of counsel.
If I Do Not Speak with Them, Can They Arrest Me?
Absent exigent circumstances, and unless the special agent has an arrest warrant in hand, he or she cannot arrest you on the spot – unless they watch you committing a crime. Rather, the IRS Special Agent will normally evaluate the evidence and then determine whether they will refer the matter for prosecution, or not.
The mere fact that you will not open the door for the Special Agents or speak with them outside of counsel does not mean they can automatically arrest you.
You are not resisting arrest just because you refuse to speak with a special agent outside of your counsel. Rather, every person has the right to be represented or have an attorney present. That does not mean that the IRS Special Agent has to provide you an attorney during the initial interview phase, but it also does not mean that you cannot have your own attorney present during questioning.
How to Prevent a Criminal Investigation?
If you have not reported foreign income in prior years (or have been a conduit for illegal income) your best option may be entering IRS offshore voluntary disclosure. The following is a summary of the different IRS offshore voluntary disclosure programs and options:
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
The Devil is in the Details…
If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.
It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.
Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.
What if You Never Report the Money?
If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.
As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.
Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).
Getting into Compliance
There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.
We are going to provide a brief summary of each program below. We have also included links to the specific programs. If you are interested, we have also prepared very popular “FAQs from the Trenches” for FBAR, OVDP and Streamlined Disclosure reporting. Unlikes the technical jargon of the IRS FAQs, our FAQs are based on the hundreds of different types of issues we have handled over the many years that we have been practicing international tax law and offshore disclosure in particular.
After reading this webpage, we hope you develop a basic understanding of each offshore disclosure alternative and how it may benefit you to get into compliance. We do not recommend attempting to disclose the information yourself as you may become subject to an IRS investigation insofar as you will have to answer questions directly to the IRS, which you can avoid with an attorney representative.
If you retain an attorney, then you will get the benefit of the attorney-client privilege which provides confidentiality between you and your representative. With a CPA, there is a relatively small privilege which does provide some comfort, but the privilege is nowhere near as strong as the confidentiality privilege you enjoy with an attorney.
Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.
Golding & Golding
At Golding & Golding IRS Offshore Voluntary Disclosure is all we do.
We Can Help You!