The IRS is using going after unreported bank accounts held by Americans. I still see advertisements by seminar-type promoters who are trying to sell foreign banking and trust arrangements as a way to avoid IRS taxes.
Can you use this type of strategy? Yes, but there is a maze of rules and regulations that you must make sure you’re following. The IRS is not going to let you go easily and the standard, bottomline answer is that US citizens are taxed on their worldwide income.
You are required to report to the IRS each year any foreign bank or financial accounts in which you are holding more than $10,000.
The I.R.S. estimates that one million American taxpayers have accounts that must be disclosed, but that only about one in four file the disclosures. They see an opportunity! So, they are moving to enforce the law aggressively and to apply stiff new penalties to taxpayers who don’t file the disclosures.
The disclosure, known formally as a Foreign Bank and Financial Account Report and more commonly as an Fbar, is separate from a federal income tax return. The disclosure is also required of United States residents with signatory power over or a financial interest in at least 50 percent of a foreign account. And the definition of those who must file includes domestic estates, trusts, partnerships and corporations.
Failure to file a disclosure or lying on a filed disclosure can be evidence of tax fraud, and the penalties are severe.
The new Patriot Act has raised the maximum civil fine to $100,000 or half of the amount in the account, whichever is greater. Plus there are criminal penalties. They can be as high as $500,000 or half the account balance, and up to 10 years in jail.
One American caught by the disclosure rules is Igor Olenicoff, the billionaire founder of Olen Properties, a real estate development company. Last December he pleaded guilty to failing to file the disclosures from 1998 to 2004, when he put around $200 million in overseas accounts. He paid $52 million to resolve the issue..
Some government officials consider the disclosures an easy-to-use weapon in the government’s campaign to rein in offshore tax evasion. Rather than having to describe complex tax shelters, “we only have to prove you have the overseas account, not whether or not you made money in it,” said a senior government official who declined to be identified because he is in the enforcement field.
The number of Fbar disclosures being filed is increasing. And this is important to note because it’s largely due to the increasing number of foreign countries who are providing info you might have thought was confidential to the IRS. Just under 117,000 disclosures were filed in 1991; the most recent data, for 2007, showed the filings had more than tripled, to more than 322,000.