For years, it was the first piece of advice that a financial planner would give anyone with more than a million dollars and assets: It was common knowledge that they should move their resources to an offshore bank account where the IRS wouldn’t be able to locate those assets or tax them.
Banks in Switzerland, the Cayman Islands and other countries with strong financial confidentiality rules helped American citizens, corporations and other taxpayers sidestep their financial obligations to the government and the public. Offshore banking for tax avoidance became so notorious that eventually the IRS took notice.
They initiated a program years ago allowing people to voluntarily disclose assets held offshore that they previously had not revealed. Most of these individuals would be subject to major penalties. Still, voluntary disclosure instead of waiting to get caught could mean that they could possibly negotiate for lower penalties. Whether you have held the account for years or just moved money offshore recently, you need to disclose the balance of your international bank accounts when you file your taxes.
The IRS watches for warning signs of hidden assets
Holding your resources in another country so that you don’t have to pay taxes on them is a clear violation of the law. However, it used to be far more complex for the IRS to gain access to information about offshore financial accounts.
The rise of digital technology and certain financial treaties has made it easier than ever before for domestic tax authorities to communicate with international government agencies or offshore banks. There are even data specialists who pore through online records looking for signs that wealthy individuals have hidden resources abroad.
Those who do not disclose those assets and pay taxes on them could face very serious consequences if the IRS locates their offshore holdings.
Dozens of people have already faced criminal charges
When the IRS discovers information indicating a taxpayer head resources, they may charge that person with a crime or audit that individual. The more property you have, the more problematic an audit becomes, as reviewing the paperwork yourself could be prohibitively difficult.
Additionally, the more resources you have, the easier it is to make a mistake in your attempts to manage them and possibly leave yourself open to claims tax evasion or fraud. If you have offshore property and have either received a notice from the IRS or worry that you need to disclose those assets, learning more about tax laws can help you respond appropriately to the matter.