One of the most frequent criminal charges our firm encounters is the illegal structuring of…
The Tax Heat is On
At the recent American Bar Association meeting held on January 29, 2016, the acting Attorney General for the tax division disclosed that the IRS and US Department of Justice are now focusing bank investigations in Belize, the British Virgin Islands, Cayman Islands, the Cook Islands, India, Israel, Liechtenstein, Luxemburg, the Marshall Islands and Panama, to name a few. The heat is on and the US government is pursuing both civil and criminal enforcement efforts to pursue taxpayers who continue to conceal foreign accounts and assets and evade their US tax obligations. The government has encouraged financial institutions and individuals who have engaged in criminal conduct to contact the US Department of Justice to discuss their options.
In September, the US District Court for the Southern District of Florida authorized the issuance of “John Doe” summonses to Citibank and Bank of America to produce records identifying US taxpayers with offshore bank accounts in Belize. The “John Doe” Summonses sought information regarding US persons who hold offshore accounts at Belize Bank International Limited and Belize Bank Limited (the “Belize Banks”). These summonses permit the IRS to seek records of the Belize Banks’ correspondent accounts at Bank of America, N.A. and Citibank, N.A.
Pursuant to the summonses, Bank of America and Citibank have been directed to produce records which identify US taxpayers with accounts at the Belize Banks. The court also granted permission to the IRS to seek records of Corporate Services’ correspondent accounts at Bank of America and Citibank, as well as information related to Corporate Service’s deposit account at Bank of America. The “John Doe” class includes US taxpayers, who at any time from 2006 through 2014 had interests in, or authority with respect to, any financial accounts maintained at, monitored by, or managed through the Belize Entities. The IRS believes that these John Doe summonses will enable it to ascertain the identity of US taxpayers that it believes are using the Belize Entities and correspondent accounts to avoid their obligation to report and remit associated taxable income to the United States.
Taxpayers who desire to disclose to the Service a foreign account have a choice between the OVDP, the latest iteration of which is an open-ended program that began in January 2012 (modified in 2014), and the newer streamlined procedures, offered beginning in 2012 and also modified in 2014 to accommodate a broader group of US taxpayers. The OVDP remains the safest and most foolproof program, with amnesty even for willful acts. But for those with the right facts, the IRS Streamlined program for non-willful violations is far simpler and much less costly. The Streamlined programs came with the 2014 improvements to the OVDP, which sparked and renewed interest in cleaning up offshore accounts.
The two programs have been very successful: Since commencement, the U.S. has collected more than $13.5 billion from individuals and financial firms in taxes and penalties due on offshore accounts.
The two programs are mutually exclusive, and a taxpayer must choose between them. The key difference in participating in the streamlined procedures requires a certification of non-willfulness. A false certification filed under the streamlined procedures could lead to possible criminal liability. Most US taxpayers who enter the IRS OVDP to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. The IRS updated its list of foreign banks where accounts trigger a 50% (rather than 27.5%) penalty in the IRS’s long-running Offshore Voluntary Disclosure Program (OVDP). This penalty is based on the highest account balance measured over up to eight years.
Whether a taxpayer’s conduct is non-willful is a critical question of fact and law, based largely on the taxpayer’s particular facts and circumstances. Taxpayers with foreign accounts would be wise to retain experienced tax legal counsel, to better analyze the taxpayers’ position and recommend one of the two programs.