Understanding Your Obligation to Report Offshore Funds

report offshore fundsIs failure to file disclosures of offshore tax a criminal tax crime? It depends.


The pursuit of unreported offshore holdings of U.S. persons has been a priority of the Internal Revenue Service (IRS) for some time. Tax evasion and money laundering are global problems that deprive governments and communities of legitimate tax revenue as well as fund illegal interests and organizations. 


We write often about the reporting required by the IRS, including FBAR and FATCA reports. These tools give the IRS the ability to compare what a person paying taxes in the U.S. discloses to the agency, and what the institution housing the foreign bank account reports. The difference can become the focus of an IRS audit. 


While FBAR reporting has existed for decades, the IRS only undertook strong enforcement efforts in the past ten years or so. The IRS now presumes that anyone with an interest in foreign assets is also aware of their obligation to report the account if it meets threshold requirements.  


Most people understand that failure to file an income tax return, or filing a fraudulent tax return can cause problems. While failure to file is a problem of omission, filing a false tax return is an act of commission. You can become non-compliant for not filing an FBAR, but that does not move you immediately into the territory of a criminal tax charge. While willfully submitting an FBAR that does not accurately reflect your financial standing creates an easier path toward an IRS criminal investigation, there remain programs within the IRS to voluntarily disclose unreported foreign assets that can help you avoid criminal penalties. 


Gaming the system to find out how long you can underreport or fail to report foreign bank accounts to the IRS is a bad idea. The penalties and fines that accompany willful FBAR infractions can erase $100,000 of your holdings or 50 percent of all undisclosed accounts. As noted by the IRS, “Civil monetary FBAR penalties have varying upper limits” depending upon the facts and circumstances of the matter. 


If you are in arrears on your FBAR reporting or know that you have undisclosed foreign assets, work with a tax attorney experienced with IRS criminal defense. Your lawyer can steer you toward disclosure programs that help you remain civil and avoid criminal sanctions.


The primary motivation of the IRS is to drive compliance, but the IRS does not shy away from enforcement. Notes IRS Commissioner Chuck Rettig, “Our Criminal Investigation and civil enforcement teams work closely with the Justice Department in the international arena to ensure our nation’s tax laws are followed. Taxpayers considering hiding funds or assets offshore should think twice; the civil penalties and criminal sanctions can be severe.”


Dedicated tax lawyers help you with tax controversy and allegations of criminal tax fraud

The legal team at Robert J. Fedor, Esq., LLC delivers experienced legal representation to clients throughout the U.S. and abroad on matters of tax crime, compliance, or IRS criminal or civil audits. When you have tax questions, call us at 800-579-0997 or contact us. We have offices in Cleveland and Chicago. 


Learn More About Offshore Tax Issues