IRS Actively Investigates Foreign Accounts, Voluntary Compliance in 2018

IRS Actively Investigates Foreign Accounts, Voluntary Compliance in 2018 (Golding & Golding)

IRS Actively Investigates Foreign Accounts, Voluntary Compliance in 2018 (Golding & Golding)

IRS Actively Investigates Foreign Accounts, Voluntary Compliance in 2018

Over the last year, we have spoken with many individuals who are under FBAR or FATCA audit, examination or investigation by the US government for not properly disclosing therefore in accounts, assess come investments, or income to the United States.

Common questions we receive about IRS FBAR or FATCA Investigation:

  • What is an FBAR?
  • What is FATCA?
  • Why do I have to report my foreign money to the IRS?
  • What happens if I did a Quiet Disclosure?
  • What are the penalties?
  • Will I Go to Jail?

Reporting Foreign Accounts & Assets

Ever since the introduction of FATCA (and even the years preceding the introduction of FATCA), the United States has made the reporting of foreign assets and other information to the IRS the key enforcement priority. 

The IRS has the right to issue extensive fines and penalties against any individual that it believes did not properly report disclose foreign money to the United States government.

While under most circumstances, and prior to receiving an Audit/Examination Notice a person can simply submit to one of the approved IRS amnesty programs (OVDP, Streamlined, Reasonable Cause), once a person is under audit or examination they lose the right to submit to the program?

Why Can They No Longer Submit to IRS Amnesty?

The main reason why being under audit or examination means a person loses the right to enter an IRS Amnesty program is because the idea is that Amnesty allows a person to get himself or herself into compliance voluntarily before the IRS learns of the information.

In other words, the IRS would not know even know about the foreign/offshore money or information unless you told them. Therefore, they offer some benefits to you actively volunteering yourself into compliance.

If you are already being audited come examines, or investigated, then the IRS already knows about the information (and/or you have a duty to being truthful with the Audit) and therefore they do need you to voluntarily comply in order for them to obtain information… and Amnesty is no longer an option.

Who is Auditing/Investigating You at the IRS?

This is very important. If you received an IRS audit notice, then chances are it is just a regular audit. And if it is a regular audit, then the best thing you can do is hire and experienced International Tax Attorney to represent you. 

The goal of hiring an experience attorney will be:

  • To assess what the IRS knows?
  • Determine whether it s an eggshell or reverse eggshell audit
  • Try to protect you from making intentional misrepresentations
  • Try to avoid a referral to the IRS Special Agents

Did The IRS Special Agents Contact You?

If you have already been contacted by the IRS special agents, then it is absolutely 100% crucial that you do not engage in any communications with the Special Agent until you have lawyered up

The IRS special agents represent the criminal arm of the IRS and even though they may not make it entirely clear that it is a criminal investigation when they first interact with you, if special agents are questioning you in the IRS believes your FBAR/FATCA violations may be willful or criminal in nature.

Will I Go To Jail?

Oftentimes, even if the IRS could pursue criminal charges against you they do not always do so — especially if you’re able to cough up enough bread to make the IRS go away. And in many instances, even if the IRS Special Agent wants to refer you for criminal prosecution, if you were able to miraculously pay off your tax debt and make the penalty amounts disappear before charges have brought against you — you able to negotiate an alternative to criminal prosecution.

With that said, the U.S. Government does prosecute thousands of people each year for tax fraud related matters, and since they to limit their cases too ones in which they know they can win, if the IRS decides to pursue a criminal prosecution against you — you may find yourself in a pretty tough spot.

How do I know I am already under investigation?

Typically, if you have a hunch or otherwise you have a sense that something seems off, you should be a bit careful on how you operate regarding your foreign money. 

The IRS employs many different tactics to try to discover your information without you knowing.

Common IRS Investigation Techniques

It is becoming more and more clear that the IRS, Department of Justice and the U.S. Government as a whole have made Federal Tax Crimes involving Tax Evasion and Tax Fraud that involve Foreign Income and Offshore Accounts a key enforcement priority.

Typical IRS Criminal Tax Investigations include:

  • Offshore Tax Evasion
  • Offshore Tax Fraud
  • Offshore Money Laundering
  • Offshore Structuring

If you committed one of these types of Offshore Tax Crimes and are audited by the IRS, you have to be very careful. That is because you may not know the extent of the information the IRS already has against you, which may lead to a referral to the Criminal Investigation Division (CID) of the IRS.

Moreover, when an IRS Audit ends and depending on the strategies or tactics used by the specific agent who examined you,an IRS Investigation or inquiry by the IRS Fraud Division may start before you even know it.

The following is a brief summary of the common key tactics the IRS may use in trying to build a case against you, and/or moving your civil audit to a criminal investigation.

Contacting Your Bank Manager

It is safe to say the IRS would have no legitimate reason for speaking with the manager at the bank that you currently use, unless the IRS is trying to build a case against you.

Otherwise, why would the Internal Revenue Service take the time to go visit your bank manager? Oftentimes, when the IRS agent visits your bank manager, it is to begin comprehensive research on issues such as transfers, moving money offshore, and other matters related to your bank account.

They may want to know how often you come to the bank, and how often you request cash as opposed to other transfers. They may also want to know if there any other non-primary individuals on the account, accessing your information and if there are other accounts that the IRS may not know about yet.

Showing up at Your Home, Unannounced

When a person is not cooperating with the IRS, or consistently avoids appearing before the IRS, the IRS can get frustrated. One way the IRS relieves its frustration is by visiting by a person’s residence to try to put pressure on them.

This can be done for two main reasons: The first reason is to put some pressure on the individual to let them know that the IRS is aware of where person lives and that the situation is not going away so quickly. Second, is so the IRS can monitor how the person reacts after the IRS appears at their home. For example, as a result of the IRS visiting their home unannounced, in a person begins making significant transitions or transfers of money from one location or account to another – it may help the IRS pursue a criminal investigation.

Showing up at your Employment or Place of Business

This is a little more intense, and is usually not protocol unless a person owns their own business. We have had many clients tell us, in the pre-criminal investigation phase that the IRS showed up at their place of business to ask themselves – and other employees – various questions.

Of course, other individuals at the place of employment not required to speak to the IRS if they are not under subpoena or summons. Nevertheless, oftentimes people are so scared that when the IRS approaches, that they feel like they have to answer the question — and do. The employees mistakenly believe that by simply answering the questions it will make it go away – usually, the reverse happens and it just gives the IRS more ammunition to go after you.

Sudden Stopping of Communication From the IRS

If you are ever in an audit and the audit ends, but you are unable to obtain a closing letter or any other documentation from the IRS it may be cause for concern. That is because when a civil audit is stopped either abruptly (or with a little more tact), before it seems like the audit is complete, it is because the IRS agent believes there is a criminal issues

In a civil situation, the IRS is absolutely prohibited from asking further questions. That is because in a criminal setting, a person has a right against self-incrimination. A civil audit is not a criminal investigation, and therefore the agent does not have the right to ask criminal type questions.

Interviewing your CPA

If the IRS believes the CPA has information regarding a potential criminal tax matter, the IRS will send them a summons and bring their own “court reporter” with them to a question-and-answer session.

While the CPA has the right to counsel, it is important to understand that if the IRS is taking these types of actions against people on your behalf, then chances are the IRS is at least trying to put together all the evidence he can to determine whether there may be a criminal issue at play.

Danger of Non-Compliance

When a person receives an audit notice, they are not required to appear at the audit. In other words, Counsel may represent them at the audit. Oftentimes, this may be a good idea but it is important to be using counsel who fully understands the complexities of not bringing the client to the audit, but still providing sufficient information to the auditor to appease the auditor.

Oftentimes, the IRS agent wants to see the individual in-person. This does not mean the person should appear, but counsel should at least have the following in preparation for the hearing:

  • A Full understanding of the case
  • A Knowledge of the underlying facts
  • All the necessary documentation
  • A multi-step plan to facilitate compliance without the client getting in harms way

Avoid an IRS investigation with IRS Voluntary Disclosure

We have successfully handled a diverse range of IRS Voluntary Disclosure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Unlike other attorneys who call themselves specialists but handle 10 different areas of tax law, purchase multiple domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

No Case is Too Big; No Case is Too Small.

We represent all different types of clients. High net-worth investors (over $40 million), smaller cases ($100,000) and everything in-between.

We represent clients in over 60 countries and nationwide, with all different types of assets, including (each link takes you to a Golding & Golding free summary):

Who Decides to Submit to IRS Voluntary Disclosure?

All different types of people submit to OVDP. We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, and more.

You are not alone, and you are not the only one to find themselves in this situation.

…We even represent IRS Staff with getting into compliance.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA is the only Attorney nationwide who has earned the Certified Tax Law Specialist credential and specializes in IRS Offshore Voluntary Disclosure and closely related matters.

In addition to earning the Certified Tax Law Certification, Sean also holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS.) 

He is frequently called upon to lecture and write on issues involving IRS Offshore Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

Our International Tax Lawyers represent hundreds of taxpayers annually in over 60 countries.

Avoid these Issues with IRS Offshore Disclosure

If you have come to the realization that you have undisclosed unreported foreign accounts-either because you acted willfully or non-willfully, there are options available to you to get into compliance.

Some people will believe that they would just wait until they are contacted by the IRS before making any representation to the IRS regarding the foreign accounts. This is a bad idea for many reasons, with the primary reason being following: if you wait until the IRS contacts you regarding undisclosed foreign accounts you will be on defense.

Sure, you know you are non-willful, but why would the IRS agent believe you or even if they do, they will take you to task typically require much more paperwork than would otherwise be required if you made a proactive representation to the IRS.

Moreover, the penalties may be a lot worse in an audit then an offshore disclosure situation.


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.

The following is a summary of penalties as published by the IRS on their own website:


A penalty for failing to file FBARs. United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. 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.

Form 8938

Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. 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.

Form 3520

A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048. This return also reports the receipt of gifts from foreign entities under IRC § 6039F. The penalty 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.

Form 3520-A

A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b). The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

Form 5471

A penalty for failing to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under IRC §§ 6035, 6038 and 6046. 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.

Form 5472

A penalty for failing to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by IRC §§ 6038A and 6038C. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, 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.

Form 926

A penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information under IRC § 6038B. The penalty for failing to file each one of these information returns 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.

Form 8865

A penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under IRC §§ 6038, 6038B, and 6046A. 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.

Underpayment & Fraud Penalties

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.

Even Criminal Charges are Possible…

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 is subject to a prison term of up to five years and a fine of up to $250,000. 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.

Get Into Compliance with IRS Offshore Disclosure

IRS Offshore Voluntary Disclosure is an effective method for getting into IRS Tax Compliance.

International Tax Lawyers - Golding & Golding, A PLC

International Tax Lawyers - Golding & Golding, A PLC

Golding & Golding: Our International Tax Lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70 different countries. Managing Partner, Sean M. Golding, JD, LL.M., EA and his team have represented thousands of clients in all aspects of IRS offshore disclosure and compliance during his 20-year career as an Attorney. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo and various Law Journals nationwide.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
International Tax Lawyers - Golding & Golding, A PLC