Offshore Tax Evasion: The crime of offshore tax evasion is on the rise. The IRS has aggressively increased enforcement of foreign accounts and income compliance, including evasion. Evasion is a tax crime. When it comes to offshore and international tax relates matters, evasion typically involves foreign account, assets, and investment reporting non-compliance. Common offshore reporting requirements involve annual FBAR and FATCA reporting. In recent years, the Department of Justice has pursued non-compliant taxpayers with criminal FBAR and criminal FATCA violations. A person may submit to IRS Voluntary Disclosure to try to avoid tax evasion.

Offshore Tax Evasion

The basics definition of offshore tax evasion is simply the intentional evading of tax. When a Taxpayer intentionally avoid paying U.S. tax on Offshore (aka international or foreign) income, it is a form of evading U.S. Tax — otherwise called “Offshore Tax Evasion.  This type of Offshore Fraud is a Tax “Crime,” and The IRS has made the enforcement on Offshore Tax Evasion, and other offshore or foreign related crimes a priority. So much so, that the IRS has recently created new enforcement units to pursue these “criminals”

Offshore Tax Evasion

Offshore Tax Evasion

Offshore tax evasion is complicated. In general, offshore tax evasion is the process of knowingly or willfully (including reckless disregard) illegal reducing your tax liability by not reporting your offshore or foreign income, or falsifying deductions and expenses.

What is the IRS Definition of Offshore?

When people think of offshore, their mind immediately takes them to a beach in the Cayman Islands or a Villa in the Bahamas, but this is not accurate (at least from the IRS’ perspective)

When the IRS speaks of the term offshore, they are essentially referring to any country that is outside of the United States (aka Foreign, Overseas, Abroad, etc.) and not just “Tax Havens.”

The IRS estimates that it loses several billions dollars annually as a result of people who have hidden or otherwise not reported money their foreign money, and the IRS has made the collection of these monies and prosecution of these individuals and businesses and enforcement priority.

What is considered “Willful”?

The most important aspect of the analysis is to determine if you we willful, or non-willful.

Willful

If you know or should have known (or acted with Reckless Disregard) that you had a duty to report the information on an FBAR (Report of Foreign Bank and Financial Accounts) or to the IRS on a U.S. Tax Return (8938 – Statement of Specified Foreign Assets), but intentionally do not report your accounts, then the IRS will want to try and prove you acted “willfully,” in order to collect massive fines and penalties from you.

But for “criminal” willfulness, the DOJ or other government agency must show intent (reckless disregard is not enough to provide criminality)

If you knew you had to report but were unaware what a FBAR or FATCA Reporting was, it does not negate the issue of willfulness. If your CPA sent you a questionnaire that you completed improperly, chances are you are willful as well — unless you did not understand the questions in the questionnaire. 

Non-Willful

You are non-willful if you acted unintentionally and/or did not know you were required to either report or disclose your foreign income, accounts, or other specified assets.

Offshore Disclosure is the process of coming forward and disclosing overseas assets and foreign income to the IRS in exchange for (in most cases) a much reduced chance of prosecution by the Internal Revenue Service. Whether a taxpayer is Willful or Non-Willful will determine which Offshore Disclosure Program the taxpayer should enter — and what their penalty will be.

Whether or not an applicant will have to pay an OVDP penalty (and if so, how much they will have to pay) or qualify for a reduced penalty (or penalty waiver) under the Streamlined Compliance Procedures will depend on a few different factors – with the most important factor being whether the applicant was willful or non-willful.

What Was Your Intent?

One of the most important aspects of determining whether a person is guilty of tax evasion or fraud is the intent of the individual. It is very important that you understand that there must be some intent or Mens Rea (absent willful blindness or reckless disregard) to commit a crime such as, offshore tax fraud or tax evasion.

Unfortunately, depending on which website you land on in your quest to understand international tax law, you may draw the incorrect conclusion that you are guilty of some sort of tax crime solely because you have unreported foreign money.

Willful vs. Non-Willful

Examples of Unreported Tax and Income

We typically prefer to provide examples in our writing to give you a better factual understanding of more complex issues, such as this. For example:

Offshore Tax Evasion Example 1

David just moved to the United States a few years ago. Before moving here, he had several accounts in his home country of Hong Kong, which he did not know he was supposed to report in the United States. While David could be subject to certain penalties (and they might be unnecessarily high), it does not mean David is guilty of any crime.

Offshore Tax Evasion Example 2

Michelle opened a few foreign life insurance policies in case of an emergency, because her parents still live in the UK. The life insurance policy has an investment component to it, but Michelle had no idea, and was also completely unaware that she is required to report the information to the IRS. Like David, Michelle may be subject to significant penalties, but would presumably not be subject to a criminal investigation.

Offshore Tax Evasion Example 3

Finally, Peter worked in Australia for many years and was a Highly Compensated Employee (“HCE”). His Australian Superannuation Fund is worth a few million dollars, but Peter neither reported the account nor contributions — as well as did not book the increase in value as income. Peter could get hit with significant penalties and fines — but presumably nothing criminal.

Be Honest with Yourself

But, don’t be too judgmental either — we have 20/20 hindsight.

Are You Very Risk Averse?

On one side of the coin, there are the individuals who are very risk-averse and would never do anything to put themselves in harms way. For these individuals, the moment they read about IRS international tax penalties, they are convinced they will be heading to prison – even though nothing could be further from the truth.

Do You Like to Walk the Line?

On the other side of the coin, are the individuals who like to walk the line — as well as those who cross over that line into criminal territory — because they feel bulletproof. But fast-forward to 2017 and the enforcement priority by the IRS to find individuals and penalize them extensively under FBAR, FATCA, and other bothersome acronyms — and suddenly the chances of getting caught increase exponentially.

Since many of these types of individuals are risk takers, they may believe they could sneak by the IRS by entering the Streamlined Program (even though they are willful) or even riskier (and illegal) by submitting a Quiet Disclosure.

Be Sure to Analyze Penalties with Your Facts, Not Someone Else’s Facts

Why you should not presume you are necessarily going to prison, you should not underestimate the IRS either. The reality is, while they are overworked and understaffed —  if you are one of the unlucky ones that gets stuck in their crosshairs, you could be subject to 100% penalty and seizure of both your domestic and foreign accounts. Moreover, if the matters is referred to the Criminal Investigation Department (CID, Special Agents) or Department of Justice (DOJ) you could find yourself potentially sitting in a prison cell for tax fraud or tax evasion.

Foreign Banks are Reporting

These days, with more than 100 countries and tens of thousands of foreign financial institutions entering into intergovernmental agreements (IGAs) with the United States for the enforcement and reporting of US account holders, it is a much riskier move to try to hide your money offshore.

Even using cash alternatives such as Bitcoin is no longer fail-safe. All one would have to do is see what happens to silk Road which thought it was full and operated on the underbelly of the Internet, to realize that even if you have Bitcoin, if the IRS wants to find it, they’ll find it.

Whistleblowers

Aside from the banks that are enforcing FATCA and proactively reporting your information the Internal Revenue Service, there’s also the issue of whistleblowers. These are individuals who approach the Internal Revenue Service with information about your accounts – you may know the name of the Whistleblower (Upset Business Partner, Scorned-Ex) or you many not.

For example, if a bank employee at your Swiss Bank in which you maintain a number account decides that he or she wants to try to make some money from the IRS, the person may report all the account information of all individuals who were considered US account holders, to the IRS – aka “blow the whistle on the Account Holders”

It would be unfortunate to get hit with such high fines and penalties due to a third-party you probably never met. 

How to Avoid an IRS Investigation

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

Golding & Golding, A PLC

We specialize exclusively in international tax, and specifically IRS offshore disclosure.

We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

  • We represented a client in an 8-figure disclosure that spanned 7 countries.
  • We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
  • We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
  • We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
  • We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Streamlined Counsel?

How to Hire Experienced Streamlined Counsel?

How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

  • Board Certified Tax Law Specialist credential
  • Master’s of Tax Law (LL.M.)
  • Dually Licensed as an EA (Enrolled Agent) or CPA
  • 20-years experience as a practicing attorney
  • Extensive litigation, high-stakes audit and trial experience

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.

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