IRS Offshore Disclosure Programs Net $5.5 Billion


The Internal Revenue Service has collected over $5.5 billion in revenue from taxpayers who came forward and reported on their foreign holdings under its Offshore Voluntary Disclosure Programs, but it could be missing billions more in revenue from tax evaders, according to a new report.

The report, issued Friday by the Government Accountability Office, found that as of December 2012, the IRS’s four offshore programs have resulted in more than 39,000 disclosures by taxpayers, producing over $5.5 billion in revenue. The offshore disclosure programs attract taxpayers by offering a reduced risk of criminal prosecution and lower penalties than if the unreported income was discovered by one of IRS’s other enforcement programs.

Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to amount to several tens of billions of dollars, but no precise figure exists. The IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest and penalties.

For the 2009 Offshore Voluntary Disclosure Program, nearly all the program participants received the standard offshore penalty of 20 percent of the highest aggregate value of the accounts, meaning the account value was greater than $75,000 and taxpayers used the accounts (that is, made deposits or withdrawals) during the period under review.

The median account balance of the more than 10,000 cases closed so far from the 2009 OVDP was $570,000. Participant cases with offshore penalties greater than $1 million represented about 6 percent of all the 2009 OVDP cases, but accounted for almost half of all offshore penalties.

Taxpayers from these cases disclosed a variety of reasons for having offshore accounts. More than half of them had accounts at the Swiss bank UBS, which signed a deferred prosecution agreement in 2009 with the IRS under which it agreed to pay $780 million in fines, penalties, interest and restitution and later agreed to turn over thousands of names of its U.S. account holders.

Using 2009 OVDP data, the IRS identified bank names and account locations that helped it pursue additional noncompliance. Based on a review of the cases, the GAO found examples of immigrants who stated in their 2009 OVDP applications that they were unaware of their offshore reporting requirements. IRS officials from the Offshore Compliance Initiative office said they have not targeted outreach efforts to new immigrants. Using information from the 2009 OVDP, such as the characteristics of taxpayers who were not aware of their reporting requirements, to increase education and outreach to those populations could promote voluntary compliance, the GAO noted.

The IRS has detected some taxpayers with previously undisclosed offshore accounts who were attempting to circumvent paying the taxes, interest and penalties that would otherwise be owed, but based on GAO reviews of IRS data, the IRS may be missing attempts by other taxpayers attempting to do so.

The GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to the IRS about taxpayers’ possible offshore activities, and found many more potential quiet disclosures than IRS detected. In addition, the IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent the money owed, thereby missing opportunities to help ensure compliance.

From tax years 2007 through 2010, the IRS estimated that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest and penalties by not participating in an offshore program, but instead by simply amending past returns or reporting on their current returns previously unreported offshore accounts, result in lost revenues and undermine the programs’ effectiveness, according to the GAO.

Among other suggestions, the GAO recommended that IRS use its offshore data to identify and educate taxpayers who might not be aware of their reporting requirements. The IRS should also explore options for using a methodology to detect and pursue quiet disclosures more effectively and implement the best option. The GAO also suggested that the IRS analyze first-time offshore account reporting trends to identify possible attempts to circumvent monies owed and take action to help ensure compliance.

The IRS agreed with all of the GAO recommendations. “Global tax enforcement is a top priority at IRS, and we have made significant progress on multiple fronts, including ground-breaking international tax agreements and increased cooperation with other governments,” wrote IRS Acting Commissioner Steven T. Miller in response to the report. “In addition, the IRS and the Justice Department have increased efforts regarding criminal investigation of international tax evasion. This combination of efforts helped support the 2009 Offshore Voluntary Disclosure Program (2009 OVDP), the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and the ongoing 2012 Offshore Voluntary Disclosure Program (2012 OVDP). The goal of these programs is to get individuals back into the U.S. tax system and to turn the tide against offshore tax evasion.”

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24 IRS Employees Indicted for Fraudulently Obtaining Government Benefits


Federal prosecutors in Memphis have charged 24 current and former Internal Revenue Service employees with crimes stemming from fraudulently obtaining more than $250,000 in government benefits.

Thirteen of the current and former IRS employees have been charged federally with making false statements to obtain unemployment insurance payments, food stamps, welfare and housing vouchers. All 13, individually charged in separate indictments, are alleged to have falsely stated that they were unemployed while applying for or recertifying those government benefits.

“According to the allegations in the indictment, while these IRS employees were supposed to be serving the public, they were instead brazenly stealing from law-abiding American taxpayers,” said U.S. Attorney Edward L. Stanton III in a statement. “These charges demonstrate our unwavering resolve to work with our law enforcement partners and hold accountable anyone who fraudulently obtains government benefits and violates the public’s trust.”

Eleven other former and current IRS employees were charged by the District Attorney General’s Office with theft of property over $1,000, a class D felony.

“The taxes that we pay are supposed to support our nation and assist individuals in need, not free-loaders who are gaming the system,” said District Attorney General Amy Weirich in a statement. “Taxpayers can take comfort in knowing that we take these matters seriously and that we will prosecute these individuals to the fullest extent possible.”

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IRS to Serve Summons at Wells Fargo Seeking Identities of U.S. Taxpayers with Offshore Accounts at CIBC First Caribbean Bank


A federal court in San Francisco has entered an order authorizing the Internal Revenue Service to serve a summons seeking information about U.S. taxpayers who may hold offshore accounts at Canadian Imperial Bank of Commerce First Caribbean International Bank, seeking records of FCIB’s U.S. correspondent account at Wells Fargo.

The order, signed Monday evening by Senior District Judge Thelton E. Henderson, will allow the IRS to identify U.S. taxpayers who hold or held interests in financial accounts at FCIB and other financial institutions that used FCIB’s Wells Fargo correspondent account.

Under a petition filed by the Justice Department, the court granted the IRS permission to serve what is known as a “John Doe” summons on Wells Fargo. The IRS uses John Doe summonses to obtain information about possible violations of federal tax laws by individuals whose identities are unknown. The John Doe summons approved by the court will direct Wells Fargo to produce records identifying U.S. taxpayers with accounts at FCIB and other banks that used FCIB’s correspondent account.

According to the declaration of IRS Revenue Agent Cheryl R. Kiger filed in support of the petition, FCIB is based in Barbados and has branches in 18 Caribbean countries. While FCIB does not have U.S. branches, it maintains a correspondent account in the United States at Wells Fargo Bank.

A correspondent account is a bank deposit account maintained by one bank for another bank. Financial transactions involving U.S. dollars flow through U.S. banks. Therefore, foreign banks that do business in U.S. dollars, but have no office in the U.S., obtain a correspondent account at a U.S. bank in order to engage in such transactions. These transactions leave a trail in the U.S. that the IRS can access through the records of the correspondent bank accounts. These correspondent bank accounts have records of money deposited, money paid out through checks and money moved through the correspondent account by wire transfers. All of this information the IRS can obtain through a John Doe summons issued to the U.S. bank holding the correspondent account.

“This summons marks another milestone in international tax enforcement,” said IRS Acting Commissioner Steven T. Miller in a statement. “Our work here shows our resolve to pursue these cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.”

As alleged in Agent Kiger’s declaration, the IRS learned that U.S. taxpayers were using FCIB to help them keep their offshore accounts undetected by the IRS and not to pay U.S. federal income tax on money placed in those offshore accounts. Kiger’s declaration describes her review of the information submitted by more than 120 FCIB customers who participated in the IRS’s Offshore Voluntary Disclosure Program. According to the Kiger declaration, many of the FCIB customers in the John Doe class may have been under-reporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States.

“The Department of Justice and the IRS are committed to global enforcement to stop the use of foreign bank accounts to evade U.S. taxes,” said Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, in a statement. “This John Doe summons is a visible indication of how we are using the many tools available to us to pursue this activity wherever it is occurring. Those who are still hiding should get right with their country and their fellow taxpayers before it is too late.”

A deliberate failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

In a similar case in January, the U.S. District Court for the Southern District of New York entered an order authorizing the IRS to serve a John Doe summons on UBS AG, seeking records of Swiss bank Wegelin & Co.’s United States correspondent account at UBS, which will allow the IRS and the Justice Department to determine the identity of U.S. taxpayers who hold or held interests in financial accounts at Wegelin and other Swiss financial institutions to evade federal income taxes .

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