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Failure to Report Offshore Funds Included on IRS 2019 List of “Dirty Dozen” Tax Scams

March 18, 2019

The failure to report funds and assets in offshore financial accounts is a crime, and it continues to be a focal point of IRS investigation and enforcement action. As a warning to taxpayers, the hiding of money or assets in offshore accounts is included on the IRS list of “Dirty Dozen” tax scams.

Hiding Income and Assets in Offshore Financial Accounts

For years, taxpayers’ lack of compliance with their reporting requirements for offshore accounts has been heavily investigated by the IRS and the Department of Justice. Through these efforts, numerous taxpayers have been found to have evaded taxes by trying to hide income in offshore banks, brokerage accounts or by using nominee entities. Funds in these accounts are then accessed using debit cards, credit cards or wire transfers. Other taxpayers have been found to have evaded taxes by the use foreign trusts, insurance plans, private annuities or employee leasing schemes.

Through its investigations, and through the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements with partner jurisdictions, the IRS and the Department of Justice continue to receive more information regarding potential noncompliance by U.S. taxpayers. Because of this, if you have undisclosed offshore financial accounts, it is possible that the account, and the failure to report income therefrom, will be discovered. 

The IRS offers several options for addressing previous failures to comply with U.S. tax and information return obligations with respect to offshore accounts:

  1. Voluntary disclosure procedures
  2. Streamlined filing compliance procedures
  3. Delinquent FBAR submission procedures
  4. Delinquent international information return submission procedures

Since there are potential criminal sanctions and severe civil penalty exposure for the failure to comply, it is best to consult with a tax attorney in determining which option is the most appropriate for a particular taxpayer. An experienced tax attorney can assist you with coming forward to meet your tax obligations, and potentially help you avoid criminal prosecution for the failure to report the offshore account and the income therefrom. 

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