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IRS/ DOJ spotlight: offshore tax evasion

On Behalf of | Feb 9, 2022 | Tax Evasion

In early 2021, the United States Congress passed H.R. 1786, also known as the “Stop Tax Haven Abuse Act.” The passage of this new legislation marks a renewed focus on eliminating tax evasion by the IRS, the Department of Justice and the United States government as a whole. In recent years, offshore tax evasion has become a rapidly compounding problem that equals billions —if not trillions— of lost tax revenue every year.    

Offshore tax Evasion: a definition 

Investing money with a foreign entity is not a crime in and of itself. In fact, utilizing a tax haven is a common practice in the business world, and in recent years, it has become more prevalent in the private sector as well. Taking advantage of that system with the intent to defraud is a crime, however. The term is called “Offshore tax evasion.” 

What do we mean by offshore tax evasion? In short, offshore tax evasion requires that a business or individual has proactively taken steps to hide money from the US government either through the omission of financial information or outright attempts at money laundering. 

What constitutes offshore tax evasion?

Offshore tax evasion is the layman’s term for any fraudulent behavior involving money kept in an overseas institution. Proving offshore tax evasion involves two major components:

  • Establishing that offshore money is indeed taxable 
  • Establishing that a party willfully attempted to hide, reduce or eliminate their personal tax burden  

Offshore accounts can be complicated, but remember, they aren’t illegal by themselves. As long as the account holder follows the rules, and uses the correct form —such as the FBAR— to disclose their financial obligations, offshore accounts are completely legitimate. Willful is the operative word here. 

What are the penalties for offshore tax evasion?

Given the recent passage of H.R. 1786, enforcement is the name of the game. The DOJ and IRS are poised to take a good, hard look at all offshore accounts, making sure that all account holders act in accordance with reporting standards. But what happens when the US government identifies someone who is willfully attempting to defraud them?

Let’s be clear: offshore tax evasion is a felony. There are both monetary and criminal penalties involved. Individual account holders found guilty of offshore tax evasion will be fined up to $100,000. For corporate entities, the fine climbs to $500,000. In both instances, parties may receive up to 5 years in prison depending on the severity of the case. 

In short, both the IRS and DOJ have made eliminating offshore tax evasion a significant focus heading into 2022. The best weapon against an unwanted audit? Ensuring that you are up-to-date with the law and dedicated to compliance.  

 

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