Is an Unreported Foreign Corporation a Criminal Tax Violation

Is an Unreported Foreign Corporation a Criminal Tax Violation

Is an Unreported Foreign Corporation a Criminal Tax Violation

Unreported Foreign Corporation as Criminal Violations

When a US person has ownership or interest in certain foreign corporations and controlled foreign corporations, they are required to report the information on an annual Form 5471 — which can be very complicated, and the failure to report to form a result in significant civil fines and penalties. While generally, a missed Form 5471 involves civil violations, it may also be criminal depending on the specific facts and circumstances. If a person did not know about the form and failed to file the form then that would not be a criminal situation. But, if the IRS believes that the taxpayer knew of the filing requirement to fail to do so, they could be subject to criminal penalties as set forth by code. The Internal Revenue Service identifies three main code sections that a taxpayer could be criminally liable for if they fail to report the form in certain circumstances in which the IRS.  Let’s take a look at those three different code sections to taxpayers to get an understanding of when the IRS may believe a crime has been committed.

26 USC 7203 – Willful Failure to File Return

      • Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution.

      • In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year”.

26 U.S. Code § 7206 – Fraud and False Statements

(Pertinent parts 1 and 2)

      • (1) Declaration under penalties of perjury

        • Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

      • (2) Aid or assistance

        • Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document;

26 U.S. Code § 7207 – Fraudulent Returns, Statements, or other Documents

      • Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.

      • Any person required pursuant to section 6047(b), section 6104(d), or subsection (i) or (j) of section 527 to furnish any information to the Secretary or any other person who willfully furnishes to the Secretary or such other person any information known by him to be fraudulent or to be false as to any material matter shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the pension 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.

Golding & Golding: About Our International Tax Law Firm

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

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