The federal government is ramping up its efforts to find and collect taxes on offshore accounts held by American citizens. For years, many people have placed funds in accounts abroad to take advantage of more lenient banking rules and more attractive incentives (like higher rates of return and shielding from discovery). While some have declared these accounts as legitimate assets to state and federal tax authorities, others have neglected to do so.
The reasons for failing to declare accounts are varied, and include:
- Ignorance of the law (i.e., assuming that money held in a foreign account didn’t count as a domestic asset even though the accountholder is a citizen or resident)
- Hiding assets from a spouse during divorce, or from business partners during a dissolution
- Shielding corporate assets from liability during litigation
- Assuming that taxes paid on domestic assets “balanced out” what would be due on the foreign-held accounts
Regardless of why these accounts haven’t been declared and properly taxed, though, the IRS has found new ways of discovering them thanks to revised FATCA regulations, unprecedented cooperation from foreign institutions and the release of the so-called “Panama Papers” listing previously undisclosed assets of many prominent world leaders, businesspeople and social elites. With these new tools at their disposal, IRS agents are now able to identify accounts much easier to collect past due taxes, enact penalties and file civil or criminal actions related to the noncompliance.
There are programs to encourage compliance, some of which might not even result in penalties, fees, fines or possible criminal consequences for eligible taxpayers. Are your offshore accounts tax compliant? Are you concerned about possible civil or criminal ramifications of declaring the accounts for tax purposes if you haven’t previously done so? Do you have questions about the legal implications of possibly renouncing your citizenship to avoid tax-related consequences? An experienced tax attorney can answer your questions about foreign accounts and help you determine the best course of action for how to proceed.