On September 25, 2017, Governor Brown signed S.B. 813 into law, which, effective January 1, 2018, expands the existing California state voluntary disclosure program to include out-of-state trusts with California beneficiaries and non-resident partners. Such taxpayers will now be eligible to use the voluntary disclosure program to bring non-California trusts into compliance with California state tax laws. In addition, the Franchise Tax Board (FTB) may waive late-filing penalties for certain types of entities and returns under the program.
The IRS remains committed to stopping the use of offshore accounts to hide money or assets, and has kept the act on its 2017 "Dirty Dozen" list of tax scams. "Offshore compliance remains a top IRS priority," said IRS Commissioner John Koskinen. "The IRS receives more foreign account information each year, making it harder to hide income offshore."
The Internal Revenue Service Advisory Council (IRSAC) released its annual report today for 2016. Based on IRSAC's findings and discussions in 2016, the council made recommendations on topics including:
Seven years, 100,000 taxpayers and over $10 billion in taxes, interest, and penalties paid, and the IRS' offshore voluntary compliance efforts are still going strong.
The Internal Revenue Service (IRS) may begin ramping up its investigation of offshore account compliance soon, based on recommendations from the Treasury Inspector General for Tax Administration (TIGTA). TIGTA recently released its final report on the IRS' offshore voluntary disclosure programs (OVDPs) after analyzing a stratified random sample of 100 taxpayers from a population of 3,182 requests to participate in the OVDP that were ultimately denied or withdrawn. Twenty-nine of these should likely have been subject to FBAR penalties, but the IRS did not pursue compliance actions. TIGTA projected a potential $21.6 million in delinquent FBAR penalties that the IRS could have assessed and collected.
Be careful who you share your offshore account information with---whistleblowing just got more lucrative. On August 3, 2016, the US Tax Court issued an opinion in a whistleblower claim case finding that the whistleblowers were entitled to an award based upon a percentage of $74,131,694 in tax restitution, a criminal fine, and civil forfeitures paid to the government. 147 T.C. No. 4. The targeted taxpayer pleaded guilty to conspiring to defraud the IRS and was ordered to pay $20,000,001 in tax restitution, a $22,050,000 criminal fine, and $15,821,000 civil forfeiture.
The Panama Papers leak has led President Obama to urge Congress to take action now against corruption and illegal financial activity. This recent, large-scale information leak has made it impossible for the government to ignore the less positive aspect of shell companies, which in theory protect the market from speculative price gouging when companies prepare to make big moves on the market, but which also have been used to hide the illegal activities of less honest beneficiaries.
If you have offshore assets that are not yet properly disclosed, you should consider contacting an attorney immediately for assistance, before a civil or criminal investigation begins. On April 3, 2016, the International Consortium of Investigative Journalists (ICIJ), with the help of German newspaper Süddeutsche Zeitung, revealed approximately 11.5 million documents on 214,000 shell companies that operated between the 1970s and 2016, causing extreme embarrassment and panic for many of the world's leading figures. Although shell companies are not illegal to own, using them to avoid paying your taxes is.
Individuals and businesses often take advantage of the benefits offshore banking provides. You may have opened an account to ensure that you get to keep more of your hard-earned money with a favorable tax rate. You may have used a trust or foundation to protect your assets.
In a move that could result in an end to IRS voluntary disclosure participants with offshore accounts, the IRS rescinded approval to participants who were previously granted inclusion in the voluntary disclosure program. Tens of thousands of taxpayers have participated in one of the three recent IRS voluntary disclosure programs of 2009, 2011 and 2012, providing details of banks in more than 100 foreign countries and jurisdictions, raising more than $4.4 billion in taxes. Suddenly, however, dozens of those participants, notably with accounts in Israeli banks, are receiving a curt letters from the IRS indicating the taxpayer has been disqualified. It is not clear whether it is because the taxpayers did not provide complete and full disclosures, or if this has to do with investigations of accounts prior to the application of the voluntary disclosure. Thus far, only taxpayers with accounts at Israel's Bank Leumi and Mizrahi Tefahot Bank have been affected. Stay tuned for more details.