When Does IRS Conduct Criminal Tax Investigations

International Tax Evasion and Fraud

In recent years, there has been a significant uptick in the U.S. government’s enforcement of international criminal tax violations. New technological advances — coupled with the globalization of the U.S. economy — have made it significantly easier for US Taxpayers to move assets offshore in an attempt to artificially reduce their tax liability.

This may include:

• • • Opening foreign accounts using local identification and not confirming US Person status,

    • Purposefully selecting Foreign Financial Institutions (FFI) that do not report for FATCA,

    • Misidentifying US Person status to the foreign bank, and/or

    • Intentionally failing to report foreign income in hopes that the IRS does not find out.

Depending on the facts and circumstances of the noncompliance, it may lead the IRS Special Agents to pursue a criminal tax investigation against the Taxpayer.

Let’s look at five (5) examples of international criminal tax investigations.

Offshore Earned Income

Peter is a US Citizen who has clients that are located outside of the United States. Peter is aware that he is required to report his foreign income on his US tax return. But, to hide his foreign income, Peter requests that his client pay a portion of the income in cash — with the remainder of the income being paid via an overseas cryptocurrency exchange. When Peter completes his US tax return, he does not include this income.

Offshore Passive income

Nicole is a US Citizen who previously lived outside of the United States. For many years she reported her worldwide income on her US tax return, but as she inches closer to retirement, she no longer wants to pay US taxes on income that is not taxed in the country of source. The majority of Nicole’s income is derived from foreign passive income such as interest and dividends — which are tax-exempt in the foreign country where the income is generated. When Nicole completes her U.S. tax return, she does not include this income.

Criminal Willfulness

David is a lawful permanent resident who previously lived outside of the United States for many years. In the country where David used to reside, he has accumulated a significant amount of wealth – along with having developed close connections with the bank manager at the institution where he does a large part of his foreign banking. David and the bank manager agreed to open accounts under false names so that David is not personally identified with the account. When it comes to completing his FBAR, David includes a few smaller accounts but intentionally omits some of the larger accounts at the institution where he believes they will not report him to the IRS.

Criminal FATCA

Michelle is a new lawful permanent resident. Since she recently changed her status from non-resident to US resident, she is required to complete additional documentation at her foreign institution, including a W-9 or W-8 BEN. Michelle has a social security number and is fully aware that as a lawful permanent resident, she is required to file a Form W-9. She knowingly and intentionally misrepresents to the foreign bank manager that she is not a US person and therefore submits a W-8 BEN instead of a W-9, so there is no reporting to the US government. There is also no withholding of any income tax from the foreign account.

Submitting False Documentation

Scott is a dual citizen of the United States and a foreign country but (intentionally) travels on his non-US passport. He recently sold his home in a foreign country and decided to open an account to receive the funds. When the bank asked him whether he is a US Person, he said that he is not a US Citizen and when they asked for a copy of his birth certificate and passport, he further confirmed that neither of them are US-based. Since this specific foreign financial institution has a relationship with the United States, they require additional documentation from new bank customers including signing under penalty of perjury that they are not a US citizen nor permanent resident. Scott signs this document, knowing that he is a U.S. citizen and submitting false documentation.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.