Dodging Taxes Through Offshore Banks? You’re Not Off the Hook

The Internal Revenue Service is winding down its program to entice wealthy Americans who hid money offshore to come forward and take an amnesty deal — but if you’re a tax dodger, or simply clueless, don’t think you’ve been spared.

The agency said that it would end its so-called “voluntary disclosure” program at the end of September. Since the earliest version of the program started in 2009, more than 56,000 U.S. taxpayers disclosed their accounts voluntarily to avoid potential prosecution. They paid $11.1 billion in back taxes, interest and often-hefty penalties for hiding money in Swiss and other foreign banks.

While the program’s end — which the IRS said it was always planning on — might seem like a gift to current or would-be dodgers, it’s not, tax lawyers said. That’s because the IRS now has more advanced tools to ferret out tax cheats, including data provided by Switzerland, Israel and other offshore jurisdictions that it can cross-check with its own records.

Offshore tax havens are providing more information to U.S. authorities than they have in the past, according to Jonathan Strouse, a tax lawyer at Harrison & Held LLP in Chicago, who represents Americans with undisclosed accounts. He cited agreements with Switzerland and Israel in which those countries send data to the IRS on American expatriates and green-card holders who reside there.

“The IRS doesn’t now need someone to come forward that they couldn’t find,” Strouse said.

‘Top Priority’

The scrutiny is likely to continue in part because of information the IRS learned as a result of the voluntary disclosures, said Larry Campagna, a criminal tax lawyer at Chamberlain Hrdlicka in Houston. The agency is savvier now about how Americans were structuring their tax evasion through offshore entities, debit and credit card accounts, he said.

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Despite the new Republican tax overhaul’s shift to broadly taxing U.S. taxpayers on their domestic income only, the law still taxes Americans living or working abroad on their worldwide income. They’re still required to file a U.S. tax return each year — even if they don’t owe anything. They also have to file an annual disclosure known as an Fbar — for Foreign Bank and Financial Accounts — detailing their overseas accounts.

“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,” Don Fort, chief of IRS Criminal Investigation, said in the agency’s statement announcing the program’s end. “Stopping offshore tax noncompliance remains a top priority of the IRS.”

Streamlined Program

Many of the 9 million U.S. expatriates that the State Department estimates are living or working abroad — particularly in Israel — still don’t realize they need to file U.S. returns or Fbars, Strouse said. The IRS regards such “non-willful” tax avoidance — think inheritors of Holocaust-era accounts — as different from knowing and willful tax evasion, which is a crime.

The IRS will continue to run a related “streamlined” program that allows people who don’t realize they’ve violated U.S. law to come forward quickly and easily and pay back taxes and interest — with no penalties. That program “has helped about 65,000 additional taxpayers come into compliance,” the agency said in its statement.


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