US taxpayers with concerns about earnings and assets in offshore bank accounts are faced with little option than owning up to the Internal Revenue Service – and they should do so sooner rather than later.
There’s no doubt the IRS intends to take tough action over undisclosed foreign bank accounts when the Foreign Account Tax Compliance Act (FATCA) starts on January 1, 2013.
However, taxpayers should not wait to the last minute to act – they can always take advantage of the IRS voluntary disclosure program offering discounted penalties for those confessing their wrongs.
Taxpayers are likely to find the IRS will get them eventually.
The biggest stick the taxman can beat citizens with is a grand jury – and it’s no good relying on the fifth amendment to avoid self-incrimination.
Fifth amendment doesn’t apply to tax cases
In more than one investigation, the grand jury has held the fifth does not apply when the IRS requires a taxpayer to give up records.
The law says a taxpayer’s constitutional rights are not violated if:
- The inquiry is regulatory
- The information is a record generally kept by an individual
- The records are similar in nature to a public document
In two cases, the courts have held bank statements fit this definition.
The message is clear – the US government is intent on uncovering any attempts to hide income or assets held by US taxpayers anywhere in the world.
As foreign financial institutions are compelled to report information about US taxpayers to the IRS, it’s clear that hoping FATCA passes by won’t wash.
$5 billion tax raised by voluntary disclosures
The voluntary disclosure program has already raised more than $5 billion from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January.
“We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore,” said IRS Commissioner Doug Shulman. “People are finding it tougher and tougher to keep their assets hidden in offshore accounts.”
The IRS also closed a loophole that some taxpayers with offshore accounts manipulated to try and keep their offshore accounts secret.
Under US law, if a taxpayer challenges disclosure of tax information in a foreign court by that government, the taxpayer is required to notify the US Justice Department of the appeal.
The IRS said that if the taxpayer fails to comply with this law and does not notify the US Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the voluntary disclosure program.
