Former IRS Commissioner on Offshore Tax Strategy

Douglas Schulman, the 47th IRS Commissioner spoke on November 7th before the professional association of the American Institute of Certified Public Accountants (AICPA) in Washington, DC.  In his speech, he talked about his last five years and where he sees the IRS focusing its attention in the future. The IRS posted former Commissioner Schulman’s prepared remarks that outlined major IRS strategic priorities. On the top of the list is a continuation of combating offshore tax evasion through aggressive collection.

Schulman commented that the global economy had presented challenges to IRS compliance but admitted that offshore tax evasion became a major priority and tax issue because of “fundamental fairness.” He and other government officials believed it wasn’t fair for wealthy citizens to unlawfully and deliberately hide their money offshore while ordinary citizens who play by the rules were footing the tax bill. Schulman admitted the results for tax evasion compliance have been substantial if not a bit surprising. Here are two strategies that worked well:

Swiss Banks

The IRS worked with Swiss financial institutions and their bank secrecy laws so they would ultimately hand over thousands of names and account numbers. What Schulman does not mention is that the Swiss Banks came to the bargaining table reluctantly and only after the U.S. Department of Justice (DOJ) leaned really hard on them starting in 2009 with United Bank of Switzerland (UBS). Ever since that case, Swiss authorities were forced to weaken existing banking secrecy laws and hand over the names of nearly 4,500 UBS clients as well from other Swiss banking institutions.

Voluntary Disclosure Program

The IRS promoted voluntary disclosure programs that gave taxpayers a chance to voluntarily report their offshore accounts, pay stiff IRS penalties and avoid going to jail. Before 2009, roughly 100 taxpayers came forward. Since 2009, approximately 38,000 voluntary disclosures were made by individuals who enrolled in the programs. Schulman states the IRS has received nearly $5.5 billion in back taxes and fines.

Commissioner Schulman claims that collecting revenue for penalties related to offshore non-tax compliance is not their “only” consideration, but it must be up there because the fines are huge. Currently, American’s with unreported foreign bank accounts could face:

  • IRS penalties that can exceed 100% of the value of the asset plus interest.
  • FBAR fines that start at $10,000 for each non-willful violation. A willful penalty is the greater of $100,000 or 50% of the account balance for each violation (year of non-filing).
  • Criminal sanctions by the U.S. Department of Justice (DOJ) for up to 5 years in prison.

Schulman says the IRS is “mining” information on those they believe to be hiding their money overseas. He also states that the IRS is well on its way “to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes.”

You cannot hide offshore bank accounts.  It’s the law to disclose them to the IRS, and if you still have not reported yours, it’s time to come clean.  But get help with an expert in FBAR regulations. Certified tax resolution professionals can help navigate the IRS waters so your best interests are represented.

More Tax Help, IRS News and Tax Relief Tips:

  1. Offshore Tax Evaders Get Preferred IRS Help
  2. Swiss Pressured to Reveal All Offshore Accounts
  3. Treasury Proposes Multilateral Agreement for Offshore Compliance
  4. Offshore Banking-Swiss Tax Evasion Advisors Indicted
  5. Senate Confirms Keneally to Fight Tax Crime

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