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  • Daniel Rodriguez

Wall Street Journal Warns California Taxpayers and Investors About Hiding Asset and Income in Offsho

For investors, entrepreneurs, and other business-minded individuals the Wall Street Journal is the gold standard for business and financial news. Thus, when the Wall Street Journal warns investors about potential civil or criminal exposure in any investment or asset protection context, it is important for all impacted or associated parties to take notice, perform a compliance review, and take any necessary corrective or remedial action. Recently, the Wall Street Journal warned about a continuing crackdown against wealthy taxpayers who stash their assets and income in unreported offshore accounts and trusts.

In light of the Wall Street Journal’s warning and guidance, it is essential for taxpayers who utilized an “offshore asset protection” promoter to seek tax guidance and legal advice. If you attempted to avoid paying taxes or to become “judgment proof” through a secret offshore scheme, you may face legal liability for these actions. However, provided that you have not come under investigation, you do still have time to take corrective action and mitigate the penalties you face.

IGAs Provide the IRS and DOJ with a Wealth of International Account and Tax Information

The Wall Street Journal article is perhaps the most mainstream pronouncement that the offshore tax evasion crackdown that began in 2009 is likely to accelerate further in the upcoming months and years. According to statistics released by the IRS and reported by the Journal, offshore enforcement efforts have netted nearly $10 billion from more than 55,000 taxpayers. In light of this level of recovery, taxpayers are probably surprised to learn the IRS’s “big guns” are just beginning to bear fruit.

One of the fundamental aspects of the crackdown is a law known as FATCA (Foreign Account Tax Compliance Act). One aspect of FATCA requires foreign financial institutions to provide account information regarding U.S.-connected persons and accounts. Through an array of international government agreements (IGAs), foreign financial institutions in more than 100 nations are now required to share information with the U.S. government.

This information comes on top of the foreign account data the IRS and DOJ had already gleaned through its Swiss Bank and other enforcement initiatives. In fact, in late May, an IRS official said the agency pursued about 100 potential criminal cases and an additional 14,000 potential civil cases as a result of analysis from Swiss Bank Program data.  In light of the IRS’s success with a limited data set, the information obtained through FATCA IGAs is likely to lead to a significant increase in the risk of secret account discovery.

Panama Papers and Leaks Expose Even More “Secret” Accounts

In addition to formal investigatory and enforcement programs, the problem presented by leaks means that no account is ever truly secret. The Panama Papers leaks are perhaps the foremost example of this principle. In that case, those affected by the leak included some of the wealthiest, most connected individuals in the world. Clearly, these individuals are seeking out top-notch tax planning and avoidance guidance. However, all of the guidance in the world regarding how to keep accounts secret is worthless if records or evidence of the accounts are leaked. The IRS and DOJ have already established initiatives to sort through the Panama Papers data and other leaks to discover U.S. taxpayers with secret, undisclosed offshore accounts. Thus, even careful planning cannot protect against inadvertent disclosure of an account or intentional document dumps.

Taxpayers Are No Longer Getting off with a Mere Fine; A Prison Sentence Is a Real Possibility

The final warning contained in the article does not concentrate on the likelihood of discovery and facing prosecution, but rather the consequences individuals can expect to face if they are convicted of offshore tax fraud or tax evasion. In the past, harsh financial penalties were exceedingly common and prison sentences were relatively rare. However, as the need to make foreign disclosures has normalized, it has become increasingly difficult for taxpayers to claim that they didn’t know about a duty to disclose. As such, federal prison sentences are no longer out of the norm for willful violation of one’s duty to disclose foreign accounts.

It is also important to note that FATCA and other offshore disclosure laws aren’t just ensnaring the ultra wealthy. People who are successful but not necessarily rich are also facing criminal charges. In 2016 a retired university professor and a doctor who made poor decisions in the context of divorce proceedings were both sentenced to serve a federal prison sentence. Whether you have millions or merely tens of thousands of dollars in foreign accounts, taxpayers who fail to make disclosures can face serious penalties including jail time.

OVDP Can Fix Offshore Disclosure Problems

If you are concerned about potential consequences stemming from a willful or accidental failure to disclosure foreign accounts, you may still have an opportunity to escape a worst-case scenario. Depending on your conduct and other factors, you may be able to secure relief through the Offshore Voluntary Disclosure Program or Streamlined Disclosure. It is essential to assess your facts and circumstances prior to taking action, because an improper or botched disclosure can actually create additional problems for a taxpayer. However, a successful disclosure can mitigate or eliminate penalties while permitting a taxpayer to come back into compliance with the law. To schedule a free consultation regarding offshore account disclosures, please call NewPoint Law Group, LLP at 800-358-0305 or contact us online.

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