Failure to Report Offshore Accounts
An offshore bank account is any account with a bank located outside of the United States. The most popular offshore banking centers in the global market are the Cayman Islands and Switzerland. Offshore accounts provide financial and legal benefits to banking clients.
If they have more than $10,000 in a foreign bank account, U.S. citizens and residents must report annually to the IRS all financial interests in any bank, securities, or other financial accounts in any foreign country. This is done by filing on or before April 15 of every year IRS form TD F 90-22.1. This form is a Report of Foreign Bank and Financial Accounts (FBAR).
What Are the Penalties for Failing to File a Foreign Bank Report?
If you have offshore accounts and fail to file a timely report, you could be subject to a civil penalty. When it is determined that a person willfully failed to file the FBAR, the government may impose a penalty of up to $100,000, or 50% of the balance of the account at the time of the violation. For non-willful violations, penalties can run as high as $10,000. You could also face a possible criminal investigation by the IRS. Criminal penalties upon conviction may include prison time, probation, and/or supervised release.
What Are the Legitimate and Illegitimate Reasons to Place Assets in Offshore Accounts?
The tax rate in another country may be lower than it is in the U.S. A person may be able to legally reduce taxes by holding funds in another county. Bank customers may be allowed to earn money tax free in other countries. Some people may be able to legally avoid paying capital gains taxes. Many people use offshore accounts because of their stability if they are concerned with the political situation in their own countries. There may be opportunities for foreign investments using funds held in an offshore account. These are all legitimate reasons to place funds in an offshore account.
In other cases, however, people may place funds in an offshore account to avoid disclosing their existence to the U.S. They may do this to avoid paying taxes or to conceal money that was illegally acquired through criminal activities. Failing to disclose these accounts may be illegal activity that could result in serious criminal and civil penalties.
When Is It Illegal to Use an Offshore Account?
It is not against the law to establish or deposit funds in an offshore bank account. It is unlawful to hide assets in offshore accounts to evade tax obligations or to hide money obtained through criminal activities. Banking institutions report banking activity of their customers to the IRS. The U.S. has agreements with more than 100 countries that will report banking activities of U.S. taxpayers.
When Do You Need to Speak with an Experienced Criminal Defense Attorney?
You will want to speak with an experienced criminal defense lawyer as soon as possible if you are facing charges of money laundering or failure to file in relation to assets you have in an offshore account. It is also important to speak with an attorney if you have unreported foreign bank accounts or undisclosed assets overseas. If you have not already been contacted by the IRS, you may be able to avoid criminal prosecution by swiftly submitting a voluntary disclosure following new IRS procedures established in 2018.
Call Werksman Jackson & Quinn LLP at (213) 688-0460. We are a premier Los Angeles criminal defense firm. Our attorneys have decades of experience handling the most complex, high-stakes criminal cases in California and beyond. We provide top-rated defense in white collar crime matters.