Are Undisclosed Offshore Accounts Worth the Savings on Your Expatriate Tax Return?

Offshore Worth Accounts

As you have read our US Expat Taxes Explained series, you have probably gathered that there has been an increased effort to find expatriates who have undisclosed offshore accounts or assets, hoping to save money on their expatriate tax return. No expatriate is pleased about their obligation to file an expatriate tax return while they are living abroad, and lawmakers around the world have taken notice.

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The number of offshore tax havens is diminishing, and governments around the world are stepping up their efforts to find those withholding information about offshore assets or income on their expatriate tax return. The Wall Street Journal published an article entitled “‘Gold Mine’ of Data Helps Officials Clamp Down on Offshore Tax Havens” on September 10th, 2011. Written by Robert Frank, the article discusses the efforts underway from international governments, including the IRS, to get their hands on what they are entitled to. Let’s highlight a few important aspects you should be aware of.

“Sweeping changes in global tax law and more aggressive government enforcement has made it more difficult than ever for the wealthy to stash their assets and income out of sight. Longtime tax resorts like Switzerland, Liechtenstein and the Bahamas that used to pride themselves on their secrecy are increasingly having to cooperate with other governments searching for tax fraud.”

If you’re looking for places to store your money to avoid reporting it on your expatriate tax return, you are running out of options.

Governments are constantly pressuring these tax havens to provide the information about their citizens’ accounts that they feel they are entitled to for taxation reasons. Although this has generally been frowned upon by expats, international pressure has resulted in information being released. As efforts increase, you’re going to have to ask whether the money saved on an expatriate tax return is really worth having to reside in regions that refuse to comply.

What caused the increase in efforts?

“The recent tax-fraud case involving Swiss bank UBS AG has been the biggest catalyst, tax lawyers say. As part of a deal with the U.S. Justice Department, UBS agreed to hand over more than 4,000 of names of U.S. account holders. Fifteen thousand others came forward under a voluntary disclosure program of reduced penalties.

Data from those accounts enabled the IRS to create a detailed roadmap of tax evasion around the world. Rather than just account holders, the IRS now is targeting banks, law firms, trust companies and accountants suspected of creating illegal offshore structures. It is getting help from its Global High Wealth Industry Group, formed in 2009 with agents better trained in complex financial structures.”

The information provided from the UBS AG case has proved to be a gold mine for the IRS. They can use this as a map to find what other accounts have been created elsewhere overseas. This allows them to ensure that income has been reported on expatriate tax returns. This information, in addition to policies such as the Foreign Account Tax Compliance Act signed last year, have given the IRS motivation to search for these undisclosed accounts. Other countries, such as Germany, the UK and Ireland, have also passed laws aimed at tax evasion.

Additional information about your expatriate tax return

If you are one of the many Americans living abroad who needs help getting caught up with their expatriate tax return and FBAR filings, please contact us.