IRS Investigation of Offshore Banking Accounts

By Expat News

American expatriates with undisclosed offshore banking accounts must be prepared for the latest important developments. What is tax evasion and offshore accounts? This question has a new meaning in the light of the special report published by the International Consortium of Investigative Journalists (ICIJ) on April 4, 2013. The report “Secrecy for Sale: Inside the Global Offshore Money Maze” uncovers that the money flows in the range of $1 trillion to $1.6 trillion that are linked to financial crimes cross international borders every year.The IRS is joining forces with overseas tax authorities in the UK and Australia to fight tax evasion following the special report prepared by the International Consortium of Investigative Journalists (ICIJ).

International Consortium of Investigative Journalists (ICIJ) and IRS investigation of Offshore Accounts

The U.S.A, the UK and Australia have the information not only about offshore banking accounts but also about foreign trusts and foreign companies in multiple jurisdictions like Singapore, Cayman Islands, Cook Islands and the British Virgin Islands. Moreover, the tax authorities obtained overseas tax data with the names of American expatriates and other taxpayers who own the undisclosed foreign assets in more than 170 countries and territories.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. “Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”

The key piece of information is that nearly 4000 Americans are listed in this report. According to the research done by a former chief economist at McKinsey & Co, the wealthy individuals hide as much as $32 trillion in offshore havens. What is tax evasion in the world of affluent individuals? The report uncovers the information not only about offshore bank accounts but more than 122,000 offshore companies and trusts, 12,000 intermediaries, and 130,000 records about people who benefit from offshore companies.

The report was prepared as a result of 15-month investigation and focused on companies working with wealthy individuals in Asia and other parts of the world.

Is it illegal to hold offshore banking accounts?

American expatriates must remember that there is nothing illegal about offshore banking accounts, foreign trusts or foreign corporations. However, it is illegal to hide income generated by these assets. Moreover, their advisors might be subject to civil penalties or even criminal prosecution for promoting the schemes to avoid tax liability.

Which overseas tax information do tax authorities have?

The IRS, the Australian Tax Office and the U.K.’s HM Revenue & Customs obtained the information about cash transfers, incorporation dates, the number of companies with assets of each individual and much more data. Moreover, the above tax authorities work with other countries to share all information and to identify the issues of non-compliance with a tax law.

“The 400 gigabytes of data is still being analyzed but early results show the use of companies and trusts in a number of territories around the world including Singapore, the British Virgin Islands, the Cayman Islands and the Cook Islands,” the British tax office statement indicated. “The data also exposes information that may be shared with other tax administrations as part of the global fight against tax evasion.”

What should American expatriates with delinquent tax returns do?

American expatriates with past-due tax returns have several options.

Offshore Voluntarily Disclosure Program (OVDP) is the best option for people who seek protection from criminal prosecution and who want to avoid 75% civil fraud penalty. We discussed earlier What is Voluntarily Disclosure. What is tax evasion OVDP dollar amount? The IRS has collected more than $5 billion in taxes as a result of OVDP 2009-2011.

The issue that these American expatriates face is that the IRS is actively pushing to uncover foreign bank accounts owned by US persons. If the IRS finds the foreign financial accounts of individuals, these taxpayers will not be eligible to participate in the Offshore Voluntarily Disclosure Program. For example, some customers of several Israeli banks were disqualified from Offshore Voluntarily Disclosure Program because the information about their foreign accounts ended up in the hands of Justice Department.

Another option for Americans with past-due expat tax returns is to go through the Streamlined Program for American expatriates. This program has a list of requirements. American expats must live outside of the USA since 2009. Also, U.S. taxpayers who have a simple tax return and owe less than $1500 in tax are eligible to participate in the program.

What is tax evasion in the world of FATCA?

This report puts additional pressure on the foreign governments across the globe to find hidden offshore accounts and fight tax evasion jointly. FATCA is not the only source of information that is used by the government to find hidden foreign assets.


Most American expatriates read about the foreign income exclusion and foreign housing exclusion, however, most of the time they are not aware of additional filing requirements in regards to their offshore banking accounts and other holdings. For example, a failure to comply with the FBAR and FATCA requirements can result not only in civil penalties but criminal prosecution. U.S. citizens and green card holders must review all options and decide whether they want to proceed with the Offshore Volutary Disclosure or Streamlined Program for Delinquent American Expatriates. International tax experts at Artio Partners will be pleased to assist with your expat tax questions. To learn more, please click here.