Offshore Perspectives
Six Indicia of Offshore Tax Criminality
United States taxpayers need to be aware that a number of danger areas around offshore foreign financial accounts can be construed as evidence that could constitute criminal offenses. Some of these may seem trivial, but all the more warrant a heads-up due to the serious consequences that might follow if they have been contravened according to current U.S. legislation.
1. NUMBERED ACCOUNTS
Swiss banks have been famous (and made rich) with the help of numbered (and thus unnamed) accounts. These are by now well-known to be illegal in most jurisdictions, their ownership constituting a criminal offense along with the other areas listed in this article.
If you are the owner of a numbered foreign financial account and/or a linked numbered credit card and believe that you may have facts and circumstances that dictate liability, you should immediately engage a Federally Authorized Tax Practitioner Attorney under the guise of attorney-client privilege so as to maintain strict confidentiality.
2. MOVING FUNDS FROM ONE TAX HAVEN TO ANOTHER
The world is now significantly smaller due to the current era of offshore investigations and FATCA, which in turn is increasing worldwide transparency, no matter what a particular bank or tax haven might still be promising. Therefore, if a facilitator at a foreign financial institution recommends closing out a foreign financial account and moving the funds to a tax haven (example – Bahamas, Cayman Islands, Singapore, etc.), you should seek an immediate second opinion. This action in itself can be construed to constitute the necessary knowledge and awareness needed to prove willfulness.
3. HELD MAIL
Agreeing to a bank policy of holding mail or asking a bank or other financial institution to hold your mail could be construed as conscious avoidance or willful blindness, which also satisfies the main area needed to prove willfulness. In essence you are purposely avoiding the notification of knowledge of your foreign financial accounts. This is one of those matters that offshore account holders might consider minor. It is not.
4. NO DECLARED TAX HOME
Some individuals consistently move from jurisdiction to jurisdiction for work purposes. At each new jurisdiction, there needs to be a determination of the tax home so that a change of address form can be filed or initiated with all proper governments. Failure to notify and inform can be an issue, because technically you would not pay tax in any jurisdiction.
When coming back into compliance with US filing obligations, the best solution may be to file tax returns in your foreign jurisdiction first. Pay the foreign taxes. You would then be able to take foreign tax credits on your United States tax returns so as to minimize your tax obligation.
5. FOREIGN CORPORATIONS
In certain regions of the world, such as South America or the Caribbean, it is easy to set up a foreign corporation in which assets such as real estate, company ownerships or financial assets, can be contributed without issue. This contribution also incurs secrecy as to true ownership similar to entity creation laws in the States of Delaware or Nevada.
Such concealment of foreign assets if improperly used for tax evasion purposes can also constitute a criminal offense. Owners of offshore assets need to find an experienced International Certified Public Accountant that understands how to properly report items under such forms as 5471, 5472, 8865, 3520, 3520-A and/or 926.
6. SIBLINGS OR CHILDREN ON JOINT ACCOUNTS
Sometimes relatives have been put on foreign accounts with seemingly good intentions while they were still children. Some of these have since grown up to become adult taxpayers. They may not even be aware of the fact that their name is on an offshore account of one of their relatives, such as a parent. This is known as signature authority and requires the filing of an FBAR indicating as such if the threshold amounts are reached.
Offshore account holders need to make sure that all named account holders are aware of their situation and in compliance with IRS rules. Not doing so may seriously jeopardize their status with the IRS and trigger a criminal investigation.
The areas outlined above are some of the most important and often-overlooked hooks that may catch foreign account holders off-guard. Such taxpayers should seek professional help to ensure they take the best and least painful option to come into compliance with DOJ and IRS rules as quickly as possible. This is especially true considering the possibility of higher penalties that might be triggered in the future by various circumstances.
