The Internal Revenue Service is getting better at finding secret stashes of overseas cash and tax evaders are receiving harsher penalties than ever, including prison.
True tax evaders have for years intentionally hidden money offshore from Uncle Sam, often in multiple layers of entities such as trusts and foundations. Since a crackdown began in 2009, more than 55,800 people have paid more than $9.9 billion to come clean on such accounts. Others haven't stepped forward, hoping to escape notice.
Now, the dragnet is tightening further.
The IRS is currently mining extensive data provided by banks in Switzerland and elsewhere to find scofflaws and their enablers. In a little-noticed comment at a conference in late May, an IRS official said the agency has taken action on 100 potential criminal cases and another 14,000 potential civil cases as a result of this analysis.
Justice Department staffers also are combing through data from the "Panama Papers" looking for U.S. tax dodgers, according to a person familiar with the matter. These documents, which were published last year, contain account details for hundreds of thousands of offshore entities.
Meanwhile, courts this year have handed down prison sentences to at least seven people who hid money in offshore accounts, including a retired professor, a plastic surgeon involved in a divorce and five others.
These sentences reverse a past trend in which courts imposed stiff financial penalties in offshore cases but little or no time in prison, says Caroline Ciraolo, a former top Justice Department official now with Kostelanetz & Fink in Washington. One reason is that it's hard for defendants to claim ignorance of the law, given publicity around the crackdown.
If you have offshore accounts with tax glitches caused by innocent mistakes, however, don't panic. And resist fearmongering pitches by advisers.
This group of Americans is large, as it includes many of the more than 7 million Americans currently living outside the U.S. Often these people didn't try to hide money abroad and pay taxes where they reside, but they haven't complied with complex U.S. tax rules on foreign accounts.
Many were unaware that the U.S., unlike most nations, taxes nonresidents on world-wide income and assets. As a result, they have felt sandbagged by the offshore-account crackdown and horrified by potential large penalties. Record numbers have renounced their U.S. citizenship, according to Treasury Department data.
So far, however, the IRS has been far more interested in catching egregious cheaters than pursuing noncompliant small fry. John Richardson, a Toronto lawyer with dual U.S. and Canadian citizenship, urges Americans who were unaware of the rules on foreign accounts not assume the IRS will throw the book at them.
"Most of these cases are fixable without penalties, and people shouldn't respond to suggestions that they'll lose their life savings," says Mr. Richardson. But people do need to become compliant and weigh whether to renounce their citizenship, he adds.
The IRS's "Streamlined Filing Compliance" program, for example, allows many Americans abroad to escape penalties for past noncompliance. (For U.S. residents with undeclared accounts who qualify for the program, the penalty is 5% of the account.)
So far, 48,000 U.S. taxpayers have signed up and paid a total of $450 million to resolve issues. The IRS says it is patrolling the list in search of people who don't qualify for the program but are trying to use it.
Many Americans abroad also can simply opt to file their taxes going forward, says Mr. Richardson. This is appropriate for people who owe little or no U.S. tax and don't have complex reporting for entities like foreign trusts or controlled foreign corporations.
This strategy isn't a good idea for people who intentionally cheated the IRS.
In part that's because an enforcement program known as Fatca is "outing" foreign accounts to the IRS. Fatca, which Congress enacted in 2010, requires foreign financial institutions to report the account information of U.S. taxpayers either directly to the IRS or to government authorities that send it to the IRS.
Unlike the Affordable Care Act and the Fiduciary Rule, it hasn't been a focus of early repeal efforts by the Trump administration, so it appears to be here to stay.
More than 288,000 foreign firms have registered to comply with Fatca, and more than 110 countries have agreed to cooperate as well. As a result of these and other measures, it's far easier for U.S. officials to find secret offshore accounts than just a few years ago.
"There used to be a trickle of cross-border tax information, and now there's a torrent," says Ms. Ciraolo.
(END) Dow Jones Newswires
June 02, 2017 05:44 ET (09:44 GMT)