Page 2 - Offshore account holders should beware: The IRS is still coming

Indeed, even without the OVDP, taxpayers with undisclosed offshore accounts would be wise to take
advantage of the lesser known voluntary disclosure process. Long before the offshore program came into
existence, the IRS followed a less formal voluntary disclosure policy. That policy will endure even now that
the offshore program has terminated. While the civil penalties will be higher than with the offshore program,
removing the threat of criminal prosecution remains a key benefit.

Those who bet on their accounts being well hidden are taking a big gamble. The penalty
(https://www.irs.gov/individuals/international-taxpayers/offshore-voluntary-disclosure-program-frequently-
asked-questions-and-answers-2012-revised) for a willful failure to file FinCEN Form 114, Report of Foreign
Bank and Financial Accounts (FBAR), is the greater of $100,000 or 50% of the highest total balance of the
offshore accounts for each year someone fails to file a report. In other words, if a taxpayer has not filed a
required FBAR for four years, the penalty could be as much as 200% of the total value of the accounts
(though some courts have pushed back on those draconian sanctions).

Meanwhile, if taxpayers have knowingly hidden their assets for the purpose of tax evasion, they face steep
fraud penalties of as much as 75% of the tax underpayment. Worse, there is no statute of limitation for
fraudulently filed returns, meaning that the IRS can go back as many years as it can to prove fraud.

International cooperation

The monetary costs involved may make some taxpayers blanch at the thought of coming forward. But not
doing so risks detection and criminal prosecution. After all, the IRS's ability to unearth unreported accounts
has improved dramatically since the first iteration of the program was announced in 2009.

Back then, the IRS and Department of Justice often struggled to get cooperation from foreign countries and
international banks who were bound by bank secrecy laws in their home countries. But in the last nine years,
international cooperation has increased as the United States has put more and more pressure on other
countries and as some nations have sought to go after their own citizens for hidden offshore bank accounts.
Because of these collaborations, the number of jurisdictions still available for concealing assets has shrunk
and the likelihood of offshore accounts being detected has intensified.

Indeed, the U.S. government just secured its first conviction of a foreign bank executive for violating the
Foreign Accounts Tax Compliance Act (FATCA, part of the Hiring Incentives to Restore Employment Act of
2010, P.L 111-147), one of the more recent and powerful laws in the government's offshore detection
arsenal, which requires foreign financial institutions to identify their U.S. customers and report information on
their account holders. More such cases are expected to follow, sending a clear signal to foreign institutions
that they shield their tax-dodging U.S. customers at their peril.

The IRS also warned, in its announcement about ending the OVDP, that the closure was in part due to
enhanced reporting through international partners and whistleblowers. And Don Fort, chief of IRS Criminal
Investigation, advised, "The IRS remains actively engaged in ferreting out the identities of those with
undisclosed foreign accounts with the use of information resources and increased data analytics. Stopping
offshore tax noncompliance remains a top priority of the IRS."

Streamlined procedures