What is Offshore Tax Evasion?
Offshore Tax Evasion: Unlike other types of international tax crime, offshore tax evasion is a very serious offense. That is because offshore tax evasion is a criminal violation. With criminal tax, there is more than money at stake.
When the IRS believes a person may have committed offshore tax evasion, they may take several actions:
- Seizure of assets
- IRS Special Agent Investigations
- Monetary Penalties
- Criminal Charges
- Jail or Prison
Not Every Offense is Evasion
Just because a person is out of compliance for not reporting foreign accounts, does not mean they are guilty of tax evasion. In fact, the majority of tax violations will not amount to tax evasion.
Rather, most tax violations are not criminal, and will only result in a civil monetary violations.
But when the issue involves offshore tax, the problem is amplified by the sheer magnitude of the penalty.
Who is Guilty of Offshore Tax Evasion?
In order to be guilty of offshore tax evasion, a person must have committed a crime and willfully sought to avoid U.S. Tax and Reporting.
When it comes to willfulness, the requirements for criminal are different than the requirements of civil.
Civil Tax Willfulness
The civil tax willfulness analysis is different than the criminal aspect of it.
If a person fails to report their income because they acted with intent, reckless disregard, or willful blindness, they may be subject to civil penalties.
Civil penalties are proven by either clear and convincing evidence or preponderance of evidence.
There is no risk of imprisonment.
Criminal Tax Willfulness
In order for there to be criminal willfulness, the taxpayer must have acted with intent and be proven by the “beyond reasonable doubt.”
Here is an example: David has a CPA and David is aware that he has to report all of his income from around the world in the United States, since the U.S. taxes on worldwide income.
David received his statements from the foreign institutions, but intentionally did not tell his CPA about the income because he did not want to report it (even though the CPA did ask about any income earned outside of the Unites States), and pay tax on it (it is earned tax-free abroad, so he has not tax credits to apply).
Therefore, David willfully and with the intent to defraud the U.S. Government, did not report the income. This is a crime.
The following is a bit of case history as to Willfulness in Criminal Tax Cases:
Cheek vs. United States (1991) “Willfulness”
The Supreme Court held that:
“Willfulness, as construed by our prior decisions in criminal tax cases, requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.”
United States vs. Hale (2017) “Willful Blindness”
The 4th Circuit Court of Appeals held that:
“The principle that willful blindness will satisfy a knowledge element in criminal law is premised on the idea that defendants should not be permitted to “escape the reach” of criminal statutes that require proof that a defendant acted knowingly or willfully “by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances.”
Notable Defenses to Willfulness Cases
Here are some notable to defense to willfulness:
Hawkins vs. FTB (California)
The 9th Circuit Court of Appeals held that (regarding disallowing a debt to discharged re: Tax Evasion)
“Therefore, a mere showing of spending in excess of income is not sufficient to establish the required intent to evade tax; the government must establish that the debtor took the actions with the specific intent of evading taxes.
Indeed, if simply living beyond one’s means, or paying bills to other creditors prior to bankruptcy, were sufficient to establish a willful attempt to evade taxes, there would be few personal bankruptcies in which taxes would be dischargeable.”
United States vs. Kokenis
The 7th Circuit Court of Appeals held that (regarding requiring defendant to actually testify to assert a good-faith defense to a criminal tax charge):
“The court erred in thinking that evidence of Kokenis’s state of mind had to come from Kokenis’s own testimony. See, e.g., United States v. Lindo, 18 F.3d 353, 356 (6th Cir.1994)
[T]he standard of evidence necessary to warrant a [good-faith reliance] instruction cannot include an absolute requirement that the taxpayer must testify, for that would burden the taxpayer’s own Fifth Amendment right against self-incrimination.”
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.