Criminal Investigations and Penalties for IRS Offshore Disclosure

According to the IRS, the US loses several billions of dollars every year as a consequence of individuals who either hide or fail to report their offshore revenue or foreign earnings. Offshore tax fraud or tax evasion is a crime if it is determined to have been committed willfully and one can face certain penalties or even jail time as imposed by the IRS. It is important to note that the IRS conducts civil audits to determine whether or not you are hiding your offshore income, revenue and filing false tax liabilities.

The IRS requires individuals with offshore accounts, investments, assets, and income to accurately report them and on time. Failure to do so results in penalties by the IRS, which can be quite severe depending on the value hidden from taxation. In recent years the Internal Revenue Service alongside the United States government has prioritized the disclosure of offshore and foreign money and assets. Those that willfully choose not to comply or through ignorance do not do so become penalized in ways unique to their crimes and falsifications respectively.

Offshore Tax Criminals and Criminal Investigations

Someone may own assets, earn income, own accounts or investments overseas. As long as this individual is a United States citizen, they are required by the IRS to report these properties accurately and on time to the IRS. Some people do not know that they have to do so while others carelessly choose to ignore their obligation to do so. Others even create offshore accounts and acquire properties and assets overseas to avoid taxation by the IRS. The IRS conducts civil audits to determine which of these categories one belongs to in the event that a taxpayer becomes a person of interest.

Individuals that are not aware of their obligations to the IRS in terms of their offshore earnings and properties can only face certain penalties depending on the value hidden by the IRS. For them, the examination remains to be a civil audit, which, therefore, means that as long as they pay their dues they have nothing to worry about. For those that the IRS determines to be willful tax evaders or perpetrators of tax fraud, a different approach is taken after the IRS does its civil audit.

Penalties for IRS Offshore Disclosure

The IRS pursues, prosecutes and penalizes a proven international tax criminal based on the facts available to them on noncompliance. That includes even the most minor international tax violations committed with fraudulent or evasive intent. However, going through the internet for this kind of information may be misleading. This is considering the fact that some attorneys use blog posts or other online platforms to spread fear. It is therefore important to understand that not every non-disclosure of offshore possessions is penalized by the IRS. So, here are the offshore disclosure infractions that attract penalties by the IRS as well as their relevant penalties.

I.    Failure to File FBARs

The FBARs require any U.S citizen or residents to report their indirect or direct financial interests in signature authority on an annual basis. If the aggregate value of the foreign account exceeds $10,000 at any point within that year and the individual willfully fails to file their FBAR they are penalized. The penalty can be $100,000 or 50% of the total balance of the offshore account by the violation. Non-willful violation attracts a $10,000 penalty per violation.

II.    Failure to File FTCA 8938

The FTCA form 8938 requires the taxpayer to file their interests on foreign financial assets including financial accounts, some foreign securities, and interests in foreign entities. Failure to comply attracts a penalty of $10,000 per information return not submitted. In addition, a $10,000 penalty is added for every month not complied with from the 90 days that the taxpayer is notified which can go up to $50,000 per return.

III.    Failure to File Form 3520 and 3520-A

The form 3520 requires the taxpayer to report transactions with overseas trusts and their reception of foreign gifts in annual returns. Form 3520-A, on the other hand, requires the taxpayer to file annual report information returns of any offshore trust with a United States owner that includes ownership interests in foreign trusts. Failure to comply or an incomplete return to form 3520 brings about a penalty greater than $10,000 or 35% of the total reportable amount. As for the gifts, the penalty is 5% of the gift per month to a maximum of 25% of the gift. As for the form 3520-A the penalty is greater than $10,000 or 5% of the total value of the trust assets as realized to be owned by the United States person.

IV.    Failure to File Form 5471

This form requires information return on any U.S person in a position such as officer, director or shareholder within any foreign corporation. Failure to do so attracts a penalty of $10,000 for each information return with an additional $10,000 for each month the failure keeps on after 90 days of notification to a maximum of $50,000 per return.

V.    Failure to File Form 5472

The form 5472 requires a 25% information return on any foreign-owned United States corporation or one engaged in foreign trade with the U.S. Failure to do so is penalized by $10,000 for every reportable transaction and an added $10,000 for each month of failure after the 90 days that the taxpayer is notified.

VI.    Failure to File Form 926

The taxpayer is required by the form 926 to report returns on any transfer of property to a foreign corporation and any related information. Failure to comply is penalized by 10% of the value of each transferred property which reaches a high of $10,000 per return with no limit if the failure is proven to be intentional.

VII.    Failure to File Form 8865

Filing false returns or failing to file your returns willfully is a convictable tax crime. Failing to file or falsified FBAR forms are also violations that subject the taxpayer to criminal penalties. The penalties for false return tax crimes include a prison term of up to 3 years and an up to $250,000 fine. Failing to report returns attracts prison penalty of up to one year and a fine of up to $100,000. As for filing a false FBAR return one can face up to 10 years in prison and a criminal penalty of up to $500,000.

Contact an Attorney

If you have offshore bank accounts and need tax advice, call the highly skilled, experienced lawyers at Ayar Law at 800.571.7175 for free, no-obligation tax advice.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.