IRS and Secret Offshore Financial Accounts

Since 2008, the U.S. government has aggressively moved against hundreds of thousands of individual and business taxpayers having undeclared offshore financial accounts.  Foreign financial institutions are working cooperatively with the U.S. government (Department of Justice and IRS) to identify taxpayers having undeclared offshore financial accounts. These institutions are disclosing names, federal identification numbers, and account information to the U.S. government.  Many foreign financial institutions are communicating with U.S. account holders encouraging them to disclose their accounts to the U.S. government to avoid severe civil and criminal repercussions.  Some foreign financial institutions are closing U.S. taxpayer accounts to avoid exposing the institutions to criminal sanctions.

Earnings from offshore financial accounts are taxable on a taxpayer’s federal income tax return. Federal tax returns also contain questions concerning whether a taxpayer has a financial interest or signature authority over a foreign financial account. In such cases, a taxpayer may be legally obligated to file annual Foreign Bank Account Reports (or “FBAR”) with the U.S. Treasury Department.

In addition to reporting offshore earnings on tax returns and filing an FBAR, taxpayers may also be required to file an annual Form 8938 with IRS to disclose the existence of other specified foreign assets.

The willful failure to report offshore earnings, file an FBAR, or Form 8938, can lead to substantial civil monetary penalties in addition to criminal prosecutions resulting in imprisonment in a federal penal institution.

To avoid these severe consequences, U.S. taxpayers may voluntarily disclose offshore accounts to IRS before IRS uncovers the secreted accounts.  Such disclosures involve amending tax returns, paying delinquent taxes, civil penalties, and interest to IRS.  Such disclosures should only be undertaken upon the advice of a knowledgeable and competent tax lawyer.

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    Howard L. Richshafer

    Howard Richshafer joined Wood + Lamping in 2008, and his practice is focused on civil and criminal tax problems, estate planning and probate, tax court trial work, mergers and acquisitions, and general corporate business matters. Howard is also a licensed Ohio CPA. Over the past 40 years, Howard has represented clients experiencing all types of civil and criminal tax problems with IRS. Those problems include IRS audits, IRS criminal investigations, enforced collection of unpaid tax liabilities involving levies, liens, and seizures of assets and income.

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