How Exactly Does the IRS Locate Foreign Account Owners?

Aug 31, 2017

This post explores the various methods that the IRS uses to sniff out foreign assets with IRS disclosure and/or tax obligations. The past few years have shown an increasing vigilance by the IRS to locate assets which are nestled away in foreign countries. Although there are numerous legal uses for monies in offshore banking, a great number of them that are illegally used for the purpose of not reporting income. The United States government has placed added pressure on foreign financial institutions to report which US citizens have foreign accounts abroad. In turn, many banks, including HSBC recently, are requiring their U.S. citizen customers to submit a completed Form W-9 form. The banks are forcing these customers to submit the information by threatening to shut down the account if the form is not sent in. The W-9 Form is essentially an admission by you that you are in fact a U.S. citizen and thus an admission that FBAR forms are required to be submitted. You should consult if you have received such request from your bank. And remember - you can quickly and anonymously determine if you have an obligation to file the FBAR and/or Form 8938 by checking out the free FBAR app: the FBAR Wiz (link). Tax authorities have gone through great measures to locate these “under the radar” accounts and have imposed harsh penalties as well as imprisonment in some cases on their owners. Furthermore, with the help of the financial institutes that used to proclaim allegiance to secrecy laws and with consorted efforts of the foreign governments themselves, these accounts are now easier to uncover and gather intricate details pertaining to them. The U.S. Treasury and Justice departments have become more aggressive in pursuing foreign banks and other facilitators in an effort to get information about U.S. account owners. The first major target that they had success with was UBS in Switzerland, which ultimately turned over the names of more than 4,000 U.S. taxpayers with hidden Swiss accounts. UBS also agreed to pay a $780 million fine as a result of an investigation and its guilty plea to helping Americans evade taxes (source). Switzerland’s oldest bank, Wegelin & Co., paid $74 million in fines, restitution, and forfeitures and agreed to cease operations as a bank. More banks in Switzerland followed, and the program has been extended to many other countries and areas, including Israel and the Caribbean (source). As these banks enter into settlements with the U.S. government, they often agree to hand over the names of their U.S. customers. Additionally, the United States and Switzerland signed an agreement that provides for fines in exchange for non-prosecution agreements for banks that facilitated American tax evasion. As these banks enter into settlements with the U.S. government, they, too, will hand over the names of their U.S. customers. Another recent development was the indictment of Edgar Paltzer, an American-educated Swiss attorney who not only helped many Americans evade taxes through foreign accounts but had control over and access to many European bank vaults holding assets and valuables that were being hidden from the government. He faces up to five years in prison, but the sentence is expected to be less because he is cooperating with authorities. The information Paltzer is providing gives the IRS a better picture of the methods used to evade taxes by transferring cash and assets to foreign accounts and locations. Sensational stories of high-profile foreign account cases have caused many taxpayers with foreign accounts to step forward under the IRS’s Offshore Voluntary Disclosure Initiative (OVDI). As of December 2012, the IRS had collected more than $5.5 billion in back taxes, interest, and penalties from more than 39,000 taxpayers under the program, the U.S. Government Accountability Office ("GAO") reported (GAO Rep’t No. 13-318). In conclusion, the IRS has some powerful tools at its disposal to detect offshore assets held by U.S. account owners. It is foolish to think that the IRS will not find your offshore assets, and it is always better to come into compliance than to continue to 'wait and see.' Check out the free and anonymous FBAR Wiz app by clicking "launch the app" above to quickly determine if you have to file the FBAR form and/or the Form 8938 (link).