Menu

Blog

May 21, 2008 - Phil Hodgen

U.S. taxpayers with undeclared offshore accounts: come to Jesus!

The Liechtenstein tax evasion drum has been beaten by the German tax authorities and German tax evaders are running for cover. It’s time for U.S. residents to listen to the rhythm.

Marketwatch has published an article, “Offshore-Account Holders Bite Their Nails“, which shows the pressure being imposed on U.S. residents. It also contains a quick overview of how you (hypothetically, because of course YOU would never be a tax dodger, would you? 🙂 ) can clean up this mess if you didn’t disclose off-shore assets:

  • Pretend there isn’t a problem and cross your fingers (the “ostrich” approach);
  • File amended tax returns (and other forms that might be required) quietly, pay the taxes, and hope things don’t blow up too badly (the “quiet disclosure”); or
  • Hire a lawyer who goes and talks to the IRS to work out how you come in from the cold in a pain-minimizing way. (the “noisy disclosure”).

None of this is new. And the IRS has long had a particular affection for chasing people with hidden offshore income.

WHY DELAY HURTS TAX EVADERS–EFFICIENCIES

It’s a glacial change. Slowly but surely it becomes easier for the tax authorities to see hidden money. This happens because information technology gets better. So just like better instruments help astronomers find black holes, so does better IT help the tax authorities find the money that’s not there.

The longer you wait, the more probable it is that tax evasion will be discovered, simply because of business efficiencies built into the financial systems.

WHY DELAY HURTS TAX EVADERS–YOU CAN’T SPEND IT ALL

Let’s say you stick $1,000,000 in an offshore bank account and don’t declare the income. Invest wisely. Years go by. Now you have $10,000,000.

If your strategy is “I will travel abroad and spend the money while traveling”, then my humble suggestion is at some point the money in the bank is simply too much for you to dissipate in dissolute living, cruise ships, five star hotels, and haute cuisine. There’s a lot of money, and you’re decades older. You can’t party down the way you used to.

I’ve seen this situation in my law practice, by the way.

WHY DELAY HURTS TAX EVADERS–MORE PRIVACY LEAKS

The recent events in this department of international tax has been triggered by privacy leaks, either by disgruntled ex-employees and paid snitches. Humans will continue to do things they aren’t supposed to. If you are relying on those humans to keep your information secret and keep you out of jail, you’re on a fool’s mission. The longer you wait, the more likely it will be that one of these leaks will affect you.

WHY DELAY HURTS TAX EVADERS–TARGETED INVESTIGATIONS

Look at how the IRS went after tax shelter investors: (1) find the tax shelter promoter; (2) get the promoter’s client list; (3) bring the hammer down on the tax payers who bought that tax shelter.

Look at how the IRS goes after abusive trust arrangements: (1) find the abusive trust promoter; (2) get the promoter’s client list; (3) bring the hammer down.

Now think for a moment. Who is the “promoter” in these offshore banking arrangements? Answer: easily visible banks in easily identifiable countries. The IRS is already moving on step 2 in the equation.

RECOMMENDATION

At the risk of offending everyone, here’s my advice.

If you have undisclosed income and assets (offshore or not), repent and come to Jesus. Figure out how you’re going to square things up with the tax authorities, and do it.

Don’t turn a money problem into a jail problem.

US Real Estate Investments Voluntary Disclosure