IRS Agents To Hunt Tax Dodgers Overseas

On a recent airplane trip from the Bay Area to Southern California, I sat beside a distinguished-looking elderly man. I initiated a conversation with him and found out he was a former judge now living in Mexico. We talked about everything, including taxation.

The former judge admitted that he was an American citizen and he and some of his friends have problems sleeping because of Foreign Account Tax Compliance Act (FATCA). So, I asked him what about Foreign Bank Account Reporting (FBAR), as that was more serious than FATCA. But he had never heard about it. I wondered how many people are like the former judge and his friends who can’t sleep at night because of FATCA and who never heard of FBAR.


FATCA was enacted in 2010 and the IRS has touted that FATCA has been successful so far. The IRS states they have collected US$6.5 billion and they reasonably believe that as much as $100 billion per year could be collected. The IRS is working with other countries that would like to use the U.S. model to improve their tax collection. The IRS will be working closely with the Organization for Economic Cooperation and Development (OECD) to implement Global FATCA (what many people are now calling GATCA); and also that the forms to request information from financial institutions would be standardized so that all countries would use the same forms, making it easy on the financial institutions. The IRS reasonably believes that FATCA can work, and given that the law has the effect of forcing compliance by every country, ultimately, everyone will benefit.


Keep in mind that an FBAR is different from FATCA and the requirements are also different. While impact of FATCA is to report you foreign income on your U.S. income tax returns, FBAR is an informational submission that must be filed with the Treasury Department if you have more than $10,000 in financial assets overseas. So, for FATCA, the financial institutions and the foreign governments will report to the IRS directly, but for FBAR, the taxpayers must self-report to the United States Treasury Department by June 30th each year.

Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation—and each year you didn’t file is a separate violation. By the way the IRS can go back as far as 6 years to charge you with violations.

Criminal penalties for FBAR violations are even more frightening, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law (such as tax law, which it often will) the penalties are increased to $500,000 in fines and/or 10 years of imprisonment.

Foreign Corporations

The IRS has a special interest in foreign corporations (i.e., corporations organized outside the United States). They are interested in shareholders with at least 10% ownership and directors of these foreign corporations. Foreign corporations are very important because that is where the big bucks are. They want U.S. citizens and green card holders who are 10% shareholders and directors (in said corporations) to provide information from the following sources annually: articles of incorporation, listing of directors, annual returns for the company filed with the registrar of companies and financial statements. While this information is filed for informational purposes only, the foreign corporations should file a tax return with the IRS. You should note that the requirement applies to partnerships and trusts also.

Those Who Gave Up U.S. Citizenship

The IRS has noted that a record number of Americans have given up citizenship recently and some may have done so with the intent to get around FATCA. But the news is bad, because the IRS is threatening that every one of those citizens will be thoroughly investigated with a view to seeing if they are trying to evade taxes.

The IRS warns that people with a certain amount of assets will be treated as if all the assets were sold and will be taxed as at the day when citizenship was given up. This will also apply to long-term green card holders. Also, if one has given up citizenship and spends more than 30 days in the United States in a calendar year, he may be taxed as if he were a citizen.

Bad Banks

The IRS has named about a dozen banks worldwide that are considered bad – and if you have an account in one of those banks and failed to comply with your filing and tax-reporting obligations, you are very likely to have a problem with the IRS.

Is The IRS Watching You?

The IRS claims it can tell when people enter and exit the country, and lying on immigration forms and tax returns is a federal offence. There is even a website that the IRS uses that can be used to tell whenever people enter and exit the United States.

Be aware that the number of days spent in the U.S. is very important in determining your tax status. For citizens, if you spend more than 330 days outside the U.S. per year, you will not be required to participate in Obamacare, or the number of days spent abroad will affect the amount of foreign earnings you may be able to exclude from income, hence paying low or no tax to Uncle Sam. For green card holders, you have immigration issues, as well as tax issues if you spend more than a specified period outside the United States.

It’s A Small World After All

The IRS said people may be able to run, but they can’t hide. The IRS said it is going to have agents all over the world, as they are going to work closely with foreign governments through the information exchange programs and the financial institutions.

Also, the IRS is using Internet searches and social media like Facebook and LinkedIn to find tax dodgers, along with whistle-blowers. There will be GATCA, where other countries will be following the IRS path and these countries along with the U.S. are proposing one standard form that will be used to get information from financial institutions worldwide. So, if China wants information from Swiss banks, it will use the same forms to make the request as Jamaica or France.

The idea is to make it easier for the banks to retrieve information. So, we may be looking to one tax system if the OECD has its way and tax evasion worldwide may very well be a thing of the past in a few years’ time, and the full compliance with the IRS requirements is the best way forward.

What Should You Do?

We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5%.

Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or you are in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”), you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let’s Meet on TaxConnections.

Original Post By:  Jeffrey Kahn

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1 comment on “IRS Agents To Hunt Tax Dodgers Overseas”

  • With a “one tax system”, will all Americans finally be equally taxed at a tax rate of 61.1%, as US citizens living in Slovenia? It is time for people living in America to finally pay their “fair share” of taxes.

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