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Phillip Fry
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IRS seeks reports on Americans' foreign bank accounts
May 15, 2008 In its hunt for wealthy Americans who have stashed money overseas to evade taxes, the U.S. government's Internal Revenue Service tax agency has turned to an obscure law enacted nearly four decades ago. Under the U.S. tax law, originally aimed at rooting out laundering of drug money, citizens or residents of the United States must tell the Internal Revenue Service each year if they have any foreign bank or financial accounts holding a total of $10,000 or more. Income from the assets is taxed at ordinary rates of up 35 percent. The law took effect in 1970, but many taxpayers have either ignored it or were not aware of it, and the Treasury Department has rarely enforced it. The IRS estimates that one million American taxpayers warrant disclosure, but that as few as one in four file the disclosures. Now, as it intensifies its efforts to root out offshore tax evasion, the IRS is moving to enforce the law aggressively and to apply stiff new penalties to taxpayers who don't file the disclosures. "There is definitely a renewed emphasis on this," said Kevin Packman, a tax lawyer at Holland & Knight. The IRS declined to discuss the new efforts it has devoted to tracking disclosures. "The IRS remains committed to developing compliance initiatives and programs to ensure that all taxpayers meet their tax responsibilities," the agency said. The disclosure, known formally as a Foreign Bank and Financial Account Report and informally as an Fbar, is separate from a federal income tax return. The disclosure is also required of United States residents with signatory power over or a financial interest in at least 50 percent of a foreign account. And the definition of those who must file includes domestic estates, trusts, partnerships and corporations. The focus could be harsh for some American clients of UBS, Switzerland's largest bank and the world's largest manager of private wealth. UBS is under investigation by the United States into whether it helped clients evade taxes, possibly by not reporting to the IRS interest and dividends earned by American clients. Those reports are not the same as Fbar disclosures, but the investigation of UBS could produce lists of client names and prompt the IRS to look at whether those people filed disclosures. Failure to file a disclosure or lying on a filed disclosure can be evidence of tax fraud, and the penalties are severe. Before 2004, the maximum fine for civil violations was $100,000, small change for those with millions of dollars or more hidden overseas. But provisions in the USA Patriot Act aimed at stopping the financing of terrorists raised the maximum civil fine to $100,000 or half of the amount in the account, whichever is greater. Criminal penalties are as high as $500,000 or half the account balance, and up to 10 years in jail. One American caught by the disclosure rules is Igor Olenicoff, the billionaire founder of Olen Properties, a real estate development company. Last December he pleaded guilty to failing to file the disclosures from 1998 to 2004, when he put around $200 million in overseas accounts, including at UBS. He paid $52 million to resolve the issue. Olenicoff was identified in an indictment of a former UBS banker on Tuesday over violations of private banking and tax issues. Some government officials consider the disclosures an easy-to-use weapon in the government's campaign to rein in offshore tax evasion. Rather than having to describe complex tax shelters, "we only have to prove you have the overseas account, not whether or not you made money in it," said a senior government official who declined to be identified because he is in the enforcement field. The focus on disclosures could also turn the spotlight on wealthy American customers of Liechtenstein's largest private bank, LGT Bank. LGT accounts for around half of all deposits in Liechtenstein, which the Organization for Economic Cooperation and Development considers the functional equivalent of an offshore tax haven. In February, the IRS announced that it was investigating more than 100 Americans with bank accounts in Liechtenstein. While it did not name the bank, the accounts in question were at LGT, according to an official with knowledge of the investigation. The number of Fbar disclosures being filed is increasing, partly because of the increased flow of data from foreign countries that are cooperating with the IRS Just under 117,000 disclosures were filed in 1991, according to IRS data; the most recent data, for 2007, showed the filings had more than tripled, to more than 322,000.
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