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April 23, 2014

IRS Crackdown: Undisclosed Cayman Islands Accounts

The tax attorneys at Nardone Law Group continue to monitor the latest developments in the Internal Revenue Service’s (“IRS”) efforts to uncover taxpayers with undisclosed foreign accounts, assets, or entities. In our prior article discussing the Cayman Islands government’s decision to enter an Intergovernmental Agreement with the United States under the Foreign Account Tax Compliance Act (“FATCA”), we explained that certain Cayman Islands-based financial institutions would now be reporting U.S. taxpayers’ accounts to the IRS. This article explains that the IRS—emboldened by the new agreement with the Cayman Islands government—now appears to be focusing on undisclosed Cayman Islands-based bank accounts. In fact, the IRS may be moving more aggressively than usual to obtain information about and build cases against taxpayers who hold secret Cayman Islands-based bank accounts. The IRS’ increased efforts to track down and prosecute noncompliant taxpayers regarding hidden foreign accounts underscores Nardone Law Group’s continued message to taxpayers: the time is now to take advantage of the IRS’ Offshore Voluntary Disclosure Program to come into compliance with federal tax reporting and payment obligations for foreign accounts, assets, and entities.

A recent update from the U.S. Department of Justice revealed that undercover IRS agents recently completed an investigation of three prominent financial advisors based in Miami, Florida who had advised clients regarding use of Cayman Islands-based bank accounts to evade taxes and launder money obtained through criminal activity. The investigation produced indictments against all three high-level financial advisors. When asked about this recent victory for the IRS, one Assistant U.S. Attorney General noted that taxpayers may no longer expect to receive tip-offs as to potential government investigations into their offshore account activity, such as warning letters from their foreign banks. In other words, the IRS is quickly obtaining and analyzing foreign account, asset, and entity information from the growing number of countries that have entered Intergovernmental Agreements with the U.S., and is immediately and vigorously pursuing noncompliant taxpayers. Again, the most recent example is the IRS’ crackdown on undisclosed use of Cayman Islands-based financial institutions, which many believe have already provided their U.S. account-holder lists to the IRS.

Because of the IRS’ continued and increasing efforts to combat tax evasion through use of foreign accounts, assets, and entities, now is the time for taxpayers with undisclosed foreign accounts, assets, and entities to come forward. The proper way to do so is through the Offshore Voluntary Disclosure Program, which provides noncompliant taxpayers a life-line to limit the otherwise onerous civil penalties and risk of criminal prosecution. But, importantly, taxpayers who the government has contacted regarding investigation of their undisclosed foreign accounts, assets, or entities are ineligible for the protection the Offshore Voluntary Disclosure Program offers. Accordingly, taxpayers with foreign accounts, assets, or entities or that must be disclosed pursuant to FATCA—and now particularly those based in the Cayman Islands—should act swiftly to enter the Offshore Voluntary Disclosure Program, or risk being precluded by government contact. Simply put, the Offshore Voluntary Disclosure Program provides the best means for taxpayers to become compliant with foreign account, asset, and entity reporting and tax payment obligations, and to limit the risk of criminal prosecution for past noncompliance.

Contact Nardone Law Group

The tax attorneys at Nardone Law Group routinely advise clients in Columbus, Ohio and throughout the country about their federal tax reporting and payment obligations and ways to comply with federal tax law, including compliance with laws governing foreign accounts, assets, and entities. If you have questions about your federal tax reporting or payment obligations under FATCA concerning foreign accounts, assets, or entities, you should contact an experienced tax attorney. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available. Contact us today for a consultation to discuss your case.

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« First Time Offender Penalty Abatement Program | Main | Internal Revenue Service: Voluntary Worker Classification Settlement Program »

April 23, 2014

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