Department of Justices' Patience with Taxpayers and Offshore Accounts is Running Thin

A recent Tax Notes Today article by Contributing Legal Editor, Jeremiah Coder, warns that the Internal Revenue Service's (IRS) Offshore Voluntary Disclosure Program (OVDP) may have limits which could have dire consequences for taxpayers that continue to hold out. Mr. Coder quotes recently confirmed Assistant Attorney General, with the Department of Justice, Kathryn Keneally:

The Justice Department Tax Division and the IRS will not forever offer criminal amnesty to taxpayers who continue to avoid reporting their undeclared offshore bank accounts, Kathryn Keneally, assistant attorney general for the Tax Division, said on January 29.

Account holders should disclose their accounts through the IRS offshore voluntary disclosure program (OVDP) as quickly as possible, "because sitting it out at this point is extremely dangerous," Keneally said at a roundtable discussion held at the University of Southern California's annual tax institute. If a taxpayer knows a criminal investigation is underway, "it's too late" to enter the OVDP and avoid investigation by the DOJ, she said.

Several offshore cases that started out as civil IRS exams have now gone criminal, Keneally said. "This idea of sitting it out, and if the government goes after me I'll only have civil penalties to deal with -- people need to get over that," she warned.

Indeed, Ms. Keneally points out that many government officials are losing their patience with taxpayers who not taken advantage of the IRS's recent voluntary disclosure programs:

"there is some tension about how many warnings people need." Some officials want to seek indictments of everybody who held out because "they had the chance and didn't come in," she said.

While the IRS's voluntary disclosure programs may end at some point, the quest to find taxpayers with unreported offshore assets will continue:

Although the government has achieved great success persuading many taxpayers to come clean, report previously undeclared foreign accounts, and pay owed taxes, "we are far from done in this area," she said, adding that the government is "looking everywhere" for taxpayers who have failed to file foreign bank account reports and pay proper tax.

The government is getting "a wealth of information" from a variety of sources, Keneally said, in part because bank secrecy laws are falling around the world and the implementation of the Foreign Account Tax Compliance Act is enticing foreign jurisdictions into cooperation with the U.S.

As taxpayers look to move their money from countries under scrutiny to new safe havens, the Tax Division is focused on keeping ahead of tax evaders. "If you know anybody who still has money out there thinking that's the right thing to do because compliance isn't worth it to them, that's just dumb," Keneally said.

To read Mr. Coder's article, click here. (Subscription required)

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