Criminal Consequences for Undisclosed Offshore Assets?

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Noncitizen Criminal Charges for Undisclosed Foreign Accounts is Rare

Noncitizen Criminal Charges for Undisclosed Foreign Accounts is Rare

Permanent Residents with Unreported Accounts 

A common (and often unnecessary) concern that many noncitizens of the United States such as Green Card Holders and other Foreign Nationals have, is whether or not there are criminal tax or immigration consequences for failing to disclose overseas accounts, assets, investments, and/or income. There are no inherent criminal aspects in failing to disclose foreign financial accounts on the FBAR and Form 8938 — or missing some unreported foreign income — unless the Taxpayer acted with criminal intent — and violated a criminal statute such as 26 USC 7201 (evasion) or 7206 (false statements). In fact, it is generally very rare for a noncitizen to suffer any immigration consequences or be criminally charged simply for having an undisclosed foreign income, bank accounts, or financial accounts — without additional criminal issues, such as money laundering. The majority of enforcement protocols for FBAR and foreign account noncompliance involve civil violations only. And, the chance of the IRS communicating with USCIS about a non-criminal offshore violation is minimal at best. 

Criminal vs Civil for Noncitizen Undisclosed Foreign Account Prosecutions

For criminal violations, the Government must prove criminal willfulness “beyond a reasonable doubt.” 

As provided by the DOJ Criminal Tax Manual:

      • Willfulness has been defined by the courts as a “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 U.S. 192, 200-01 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346, 360 (1973). Therefore, in order to establish willfulness, the government must establish that the defendant was aware of his or her obligations under the tax laws. See United States v. Bishop, 264 F.3d 535, 546 (5th Cir. 2001); United States v. Buford, 889 F.2d 1406, 1409 (5th Cir. 1989); United States v. Conforte, 624 F.2d 869, 875 (9th Cir. 1980); United States v. Peterson, 338 F.2d 595, 598 (7th Cir. 1964). As the Seventh Circuit Court of Appeals has stated, there must be “proof that appellant knew he was violating a ‘known legal duty.’” United States v. Fitzsimmons, 712 F.2d 1196, 1198 (7th Cir. 1983).
      • When determining whether a defendant has acted willfully, the jury must apply a subjective standard; thus a defendant asserting a good faith defense is not required to have been objectively reasonable in his misunderstanding of his legal duties or belief that he was in compliance with the law. Cheek v. United States, 498 U.S. 192, 202-03 (1991); United States v. Powell, 955 F.2d 1206, 1211-12 (9th Cir. 1992); United States v. Regan, 937 F.2d 823, 826 (2d Cir. 1991), amended by, 946 F.2d 188 (2d Cir. 1992); United States v. Whiteside, 810 F.2d 1306, 1311 (5th Cir. 1987).
      • The jury must therefore focus its inquiry on the knowledge of the defendant, not on the knowledge of a reasonable person. The jury may, however, “consider the reasonableness of the defendant’s asserted beliefs in determining whether the belief was honestly or genuinely held.” United States v. Grunewald, 987 F.2d 531, 536 (8th Cir. 1993); United States v. Middleton, 246 F.3d 825, 837 (6th Cir. 2001).

While the beyond-a-reasonable-doubt standard is not specifically quantified — it is generally thought of as requiring about 95% proof. Criminal Willfulness is NOT the same as civil willfulness — and it requires more than just mere “reckless disregard.” Rather, it involves willfulness. If a person is convicted of a crime — such as False Statements (7206) or Evasion (7201), it may result in fines and imprisonment. Meanwhile, civil violations can be non-willful or willful, and while penalties can be steep — they do not result in imprisonment. Moreover, unless there are significant egregious facts supporting a willful violation, these types of civil violations do not result in any issue — at all — with USCIS.

Even though criminal violations and issues involving USCIS for noncitizens with foreign account noncompliance is not common, there are other civil penalties that can have a significant impact on the Taxpayer.

Here are 3 common IRS enforcement tactics:

Levy for Civil Foreign Account & Unreported Income Against Noncitizens

The IRS may seek to Levy a noncitizens bank account, which means that the IRS will seek to directly withdraw money from bank account sufficient to pay for any outstanding tax liability for an assessed penalty. The IRS cannot just go in and take the money before providing the Taxpayer with sufficient notice to fight the levy — and the Taxpayer may dispute the penalty/levy with a CDP 12153 (Collection Due Process Hearing).

As provided by the IRS:

      • A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a legal claim against property to secure payment of the tax debt, while a levy actually takes the property to satisfy the tax debt.

Where does Internal Revenue Service’s (IRS) authority to levy originate?

      • The Internal Revenue Code (IRC) authorizes levies to collect delinquent tax. See IRC 6331. Any property or right to property that belongs to the taxpayer or on which there is a Federal tax lien can be levied, unless the IRC exempts the property from levy.

What actions must the Internal Revenue Service take before a levy can be issued?

The IRS will usually levy only after these four requirements are met:

      • The IRS assessed the tax and sent you a Notice and Demand for Payment (a tax bill);
      • You neglected or refused to pay the tax; and
      • The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: if the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.

      • The IRS sent you advance notification of Third Party Contact notifying you that IRS may contact third parties regarding the determination or collection of your tax liability.

Lien (NTFL) for Civil Foreign Account & Unreported Income of Noncitizens

The IRS can also place a Lien on the property of the Taxpayer — which can be serious. Therefore, Taxpayers should be made aware of the potential implications of an NTFL and IRS Timeline for enforcement of Civil Foreign Accounts & Unreported Income Penalties when devising their own strategies.

As provided by the IRS:

    • A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after:

The IRS:

      • Puts your balance due on the books (assesses your liability);
      • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and

You:

      • Neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property. 

Passport Revocations for Noncitizens with Unreported Foreign Accountsand/ or Income

In recent years, the IRS has pursued passport denials and revocations for Taxpayers with serious debt (although FBAR penalties alone are generally insufficient to support this type of remedy). If a taxpayer travels often and must be able to access their passport frequently, then this is also an important concern to consider if Taxpayer wants to dispute the civil penalty.

As provided by the IRS:

What tax debt does the IRS certify to the State Department?

      • The IRS certifies seriously delinquent tax debt to the State Department. Seriously delinquent tax debt is an individual’s unpaid, legally enforceable federal tax debt (including interest and penalties) totaling more than $54,000 (adjusted yearly for inflation) for which a:
        • Notice of federal tax lien has been filed and all administrative remedies under the law have lapsed or have been exhausted, or
        • Levy has been issued.

What tax debt does the IRS not certify to the State Department?

      • Some tax debt isn’t included in seriously delinquent tax debt such as the Report of Foreign Bank and Financial Account (FBAR) penalty and child support. Also not included are tax debt:
        • Being paid timely with an IRS-approved installment agreement,
        • Being paid timely with an Offer in Compromise accepted by the IRS or a settlement agreement entered with the Justice Department,
        • For which a collection due process hearing is timely requested regarding a levy to collect the debt, and
        • For which collection has been suspended because a request for innocent spouse relief has been made.

Golding & Golding: International Tax Lawyers Representing Clients Worldwide

Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.

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