Foreign Bank Accounts and the IRS
Original Article: Mitchell S. Fuerst: Foreign Bank Accounts and the IRS [pdf]
The IRS Targets Taxpayers Hiding Assets in Offshore Bank Accounts
Voluntary Disclosure Guidelines Give Taxpayers Until September 23rd to Reveal Offshore Assets
According to a statement on Offshore Income given by IRS Commissioner Doug Shulman, U.S. Taxpayers and entities that are currently hiding assets in offshore accounts have a limited voluntary disclosure period until September 23rd , of 2009 to reveal those accounts before the IRS takes the offensive. After the voluntary disclosure period, the IRS plans to aggressively pursue both civil and criminal penalties for taxpayers that fail to take advantage of the voluntary disclosure initiative. Furthermore, the IRS revealed that they are actively tracking entities and individuals attempting to clean up their act through “quiet disclosures,” the practice of Taxpayers declaring a prior increase of income through amended tax returns.
The IRS stated, “Those taxpayers making ‘quiet’ disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”
It seems that the IRS has decided to take an aggressive position here. In a statement given by the IRS regarding the penalties for the 52,000 holders of undeclared UBS bank accounts, the IRS only mentioned a “reduction of penalties,” for those that took advantage of the voluntary disclosure practice.
Under the new IRS guidance, the quiet disclosure practice is no longer a safe measure to make amends to the IRS. President Obama recently mentioned the appointment of congressional authority to hire an additional 800 IRS agents assigned to track down and pursue illegal tax evasion and the use of undeclared offshore accounts. Though it is legal for Americans to have offshore accounts, the U.S. Treasury Department requires any account containing more than $10,000 to report the existence of the account, and taxes paid on the income as well.
Madoff Investors Getting Some Relief from IRS
Madoff Ponzi Scheme Victims may be able to receive tax relief and refunds by the new IRS guidelines.
Douglas Shulman, Commissioner of the IRS, announced to Congress that the relief is intended for those who incurred losses by Ponzi Schemes such as the one at issue in the Madoff Ponzi Scandal.
If Madoff investors reported and paid taxes on the earnings from their Madoff investment, they may be due a refund on those taxes because the profits reported were never actually realized.
At a Senate Finance Committee hearing, Shulman stated that the investors in some of the cases were actually entitled to a theft loss deduction which is not subject to limits placed on traditional capital losses.
Mr. Shulman continued to state that theft loss deductions may be taken for the year in which the fraud was discovered, except when the investor may have a “reasonable prospect” in recovering the capital loss.
Shulman went on to say that identifying the actual amounts and times of the losses from Ponzi schemes may be “factually difficult” and could take a considerable amount of time to identify the prospects of the lost money.
Shulman, in his testimony to the Senate, continued:
“Some taxpayers have argued that they should be permitted to amend tax returns for years prior to the discovery of the theft to exclude the phantom income and receive a refund of tax in those years The new IRS guidelines do not address that argument.”
From the time that the Madoff scandal was made public, roughly $1 billion in assets have been identified for Madoffs victims. That figure, however, is only a fraction of the $65 billion that Madoff claimed he had possession of. Some have estimated that the Madoff Ponzi Scheme may have cost the IRS as much as $17 billion in lost tax revenues from investors that had earned fictitious profits.
Securities Investor Protection Corp., an organization that backs failed brokerage firms, has already started sending out checks to the victims of the Madoff Ponzi Scheme. Madoffs victims are eligible for up to $500,000 up until July of 09 from the SIPC. Furthermore, Mr. Shulman stated that investors should be aware that they need to deduct the amount they receive from the SIPC from their Madoff investment based “theft loss” deduction.
According to Shulman, the financial statements which were provided to Madoff Ponzi Scheme investors, should be sufficient documentation enough to establish losses for filing tax claims.
Do you need to speak with an attorney about IRS tax relief?
Contact us for a consultation about fraud-related tax losses.
