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International accounts don’t protect you from taxes

On Behalf of | Dec 24, 2020 | IRS

For decades, offshore banking has been synonymous with tax avoidance, if not outright tax evasion, by wealthy people and corporations.

People with significant resources may have funneled them into accounts held in countries that did not report those accounts to the United States, such as Switzerland or the Cayman Islands. Such practices once helped people avoid their tax obligations on major holdings. The time of the invisible offshore bank account has long since passed.

The Internal Revenue Service (IRS) well knows that people use international accounts as a means of minimizing their tax obligations domestically. You have an obligation to report the balances in accounts held in other countries when you file your tax return. If you fail to do so, you might face legal consequences if the IRS finds out.

The IRS actively looks for and prosecutes those who hide assets overseas

For several years, the IRS had a voluntary reporting system that allowed people who had previously used offshore accounts for tax purposes to claim those accounts and minimize tax and legal liability for their previous behavior.

Despite repeated warnings from the IRS that they would begin to crack down on offshore holdings, many people assumed that their financial institutions would not release their information. The IRS has published records of dozens of their most-successful and highest-balance international banking prosecutions to remind others of the risk that they take by not disclosing their assets accurately on their tax returns.

Even countries that have historically refused to provide transparent records to the United States have begun complying with the IRS.

Just because they haven’t found it yet doesn’t mean they won’t

There is a popular saying that it is better to beg forgiveness than to ask permission. While that may be applicable in certain social situations, it is not a good philosophy for handling tax law and the IRS.

If you delayed making disclosures and you don’t pay the full amount that you owe, the IRS could come after you for penalties and interest. They may also charge you with a criminal offense and even publish your name on their website to remind others about the risks they take by not disclosing their international banking accounts.