Foreign Accounts

Another common method of evading income taxes is when an individual creates fraudulent foreign accounts and trusts to conceal their assets from tax liability in the US. High-income professionals with annual earnings over the six-figure mark are most often targeted for having participated in such schemes.

Foreign Trust Tax Fraud

The foreign trust tax fraud is when a domestic business sets up a trust in a foreign, “tax haven” country, under the same name. When the domestic business receives a check from a customer, it gets deposits into the same-name foreign trust account.  The customer has no way of knowing that his funds ever left the country, even after reviewing a cleared, cancelled check.   The funds are then credited to the foreign trust account in a tax haven country which charges a nominal tax rate, or none at all: In most cases, these transactions are not reported to the US and thus it’s another case of tax evasion.

The Investigation Process

These types of schemes are handled by IRS’s Foreign and Domestic Trusts Program, which works in conjunction with its criminal investigation and civil compliance units, along with chief counsel for the IRS and the Department of Justice.

These investigations target not only the business owners who set up these foreign business accounts, but also their willing clients.  It’s a tax scheme that has very broad implications for the US.

An individual could commit a tax fraud by traveling to a tax haven country with large amounts of cash that went previously un-reported which subsequently get deposited into a foreign account.  By bringing the monies overseas, the funds are difficult to detect and thus the scheme is just one more way for some people to attempt to avoid paying taxes.

The Voluntary Disclosure Program

In an attempt to curb illegal activities, the IRS’s Criminal Investigation unit implemented a Voluntary Disclosure Program, which is designed to encourage taxpayers to come forward and disclose any and all foreign accounts.  Individuals that have been concealing their assets overseas might receive some leniency when opting to come forward through this program.  It is the key entry point for non-compliant taxpayers to get back into the tax system.

Non-compliant taxpayers who wish to reenter the system in this manner must submit an Offshore Voluntary Disclosure Letter to the IRS’s Criminal Investigations unit in time for tax deadline.  By voluntarily coming forward, it eliminates the criminal investigation proceedings, which is often the protocol in cases of foreign account tax fraud cases.  Instead, the IRS will work with the individual to determine what is owed in back taxes.

There is currently a proposed legislation that seeks to double the penalty for taxpayers who have been charged with foreign account tax fraud. So if you’re a taxpayer with unpaid taxes in foreign accounts, the Voluntary Disclosure Program will definitely eliminate the risk for these much harsher penalties.

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