NORTH BAY – Tax attorneys and planners are being inundated by inquiries from clients with what they believed were perfectly innocent offshore accounts as the federal government seeks to crack down on intentional tax evasion.
Last year, the Internal Revenue Service cracked down on United States citizens with offshore bank accounts who were not reporting income or filing the proper reports.
It created a voluntary disclosure period when people could come forward. The voluntary compliance period ended last year, but people still are coming forward.
Meanwhile, the IRS and Department of Justice are conducting a wide-ranging investigation into whether Americans with offshore bank accounts have used the accounts to evade U.S. taxes.
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“Douglas Shulman, the IRS commissioner, thinks that everyone with an offshore account is a hardened criminal,” said Kent Lawson, a shareholder of Burr Pilger Mayer who advises clients on global tax planning and compliance.
Mr. Lawson said there are 17,000 cases in the country of people needing to amend their taxes, and not everyone with a foreign bank account is a criminal. Many of those people have not received good tax advice.
“It could be grandfather was in WWII and had an account in Holland that has grown substantially,” he said. “This legacy of criminality passes through the generations, but it could be innocent.”
Or, he said, someone could have moved from another country and not gotten good tax advice.
He said that in one week the firm received requests for 40 cases from attorneys to look into individuals’ returns with offshore accounts.
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Stu Myhill, a senior manager in Moss Adams’ tax practice who focuses on international tax issues, said penalties have been increased to now potentially be 50 percent of the account balance in the case of a willful violation. A non-willful violation is $10,000.
He, too, said there are plenty of legitimate reasons for offshore accounts.
“It could be personal property offshore where there is a foreign account to pay a maid or property manager, a business that has foreign operations overseas. Someone could have a foreign parent and grandparent who gifted or willed it to someone in the U.S.,” he said. That person may not even know necessarily that they have the account, he said.
“There is not necessarily intention of fraud.”
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Steve Goldberg, a tax planning attorney with Friedemann Goldberg in Santa Rosa, cited other reasons for legitimate offshore accounts.
“There are companies and businesses that have offshore holdings or individuals who have properties in other countries,” he said. “It is not always tax evasion for the purpose of tax evasion.”
He said they do have clients who go offshore for asset protection. But, he said, “It takes foresight. If people call me and say I have a judgment and want to put money offshore, I say no way.”
He said when doing tax planning, “Ask yourself if the same planning could be done onshore? If not, that will get you a date with the IRS.”