Divorcing and Your Spouse has Unreported Foreign Accounts & Assets?
- 1 Divorce and Unreported Foreign Money
- 2 Why are Former Spouses at High-Risk?
- 3 Be Careful Running to the IRS
- 4 Joint Return, Joint Penalty Responsibility
- 5 Typical Example of Unreported Foreign Money
- 6 Two Common Examples
- 7 IRS Audit & Investigation
- 8 High-Risk
- 9 Be Proactive, Get Into Compliance with Offshore Disclosure
- 10 Two Important Facts to Remember
- 11 Penalties
- 12 Golding & Golding: About Our International Tax Law Firm
Divorce and Unreported Foreign Money
Unfortunately, with the IRS continuing to pounce on individuals who have unreported foreign accounts, investments, income, etc. former spouses have to be careful – especially former spouses.
Why are Former Spouses at High-Risk?
Because the IRS is not stupid. When people divorce, there is almost always some form of bitterness, contempt or other animosity or anger seething below the surface. Maybe one spouse feels betrayed, or feels he/she did not receive the settlement they believed they were entitled to.
Alternatively (or in addition to) financial issues between former spouses, another common issue is when one spouse was the last to know about the affair between the Spouse and Nanny. In other words, the former spouse no longer has the other spouse’s best interest at heart (putting it nicely).
Be Careful Running to the IRS
From many of our former clients who have been this route (especially clients with multi-million dollars stashed abroad and a lot to lose) it can be very tempting to run to the IRS, but you have to fight the urge to act prematurely.
Why? because if it was a Joint Return, unless have properly applied for offshore disclosure, innocent spouse, or a entered a plea deal in more serious circumstances — you may be putting yourself at risk!
Joint Return, Joint Penalty Responsibility
When spouse file their tax returns together, it means they are filing one-return. While the Married Filing Jointly status provides the best bang for the buck (aka usually results in a lower tax liability absent the Marriage Penalty Tax for High Income Earners).
Of course, what you will not learn (until you’re going through a divorce) is that filing MFJ will also provide you the most liability if your spouse is something improperly or illegally.
Typical Example of Unreported Foreign Money
One spouse has either dual-citizenship, or is a Legal Permanent Resident (or visa holder) in the United States, but has citizenship in a foreign country. The “Foreign Spouse” has money overseas. When the couple goes to the CPA to prepare their taxes, the CPA provides an Organizer/Binder/Questionnaire for the spouses to complete.
Due to increased enforcement of International (Offshore or Foreign Money) fines and penalties, the questionnaire asks whether either spouse has foreign accounts:
Two Common Examples
Example 1: The non-foreign spouse marks off no, but the foreign spouse does not come clean. The foreign spouse knows he or she has other accounts, but does not identify them in the questionnaire. Whether or not the foreign spouse believed they did not have to be reported is immaterial at this time. The CPA they hired asked a question, they understood the question, and the foreign spouse did not answer it truthfully.
Example 2: The non-foreign spouse marks off no, but the foreign spouse is not available at the time. Maybe the foreign spouse is away on business…or just doesn’t handle this portion of the finances. Moreover, since the spouses do not discuss, access or utilize any of the “foreign money,” it may have just been a simple mistake or error — but there was no intent to defraud the IRS.
IRS Audit & Investigation
The couple has been divorced for two years, when the IRS decides to audit the return. Even though the couple is divorced, it does not matter – they are both on the hook, since when they filed the return, they filed it Married Filing Jointly. In other words, simply because they are now divorced does not absolve them from liability for prior returns they filed together.
Now that the love and respect for each other has all but fizzled out, the IRS will try to take advantage. They will try to get one spouse to roll-over on the other spouse. Be Careful. It may be very, very tempting to want to sell-out your prior spouse, but what the IRS does not tell you is that it may impact your finances as well, since you too may be on the hook for the penalties.
Be Proactive, Get Into Compliance with Offshore Disclosure
The IRS offshore voluntary disclosure programs are programs designed to bring people safely into compliance. Depending on the facts and circumstances of a person’s case will help determine which offshore disclosure program may qualify for.
By entering the program, a person may avoid even more excessive fines and penalties in accordance with US tax law.
Two Important Facts to Remember
- Usually the first person to comply gets the better deal and will get to be on the “offense.”
- Even if your former spouse will not cooperate, you can still make a one-spouse disclosure
If you are found to be willful and intentionally misrepresented your case to the IRS, you may be subject to extremely high fines and penalties beyond what you may have already paid.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
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 Offshore Counsel
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
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.