IRS Uncertain On How to Handle FBAR Delinquents - IRS Personnel Withdraw from December 9 Conference

Boston, MA-- November 18, 2010. By Attorney Morris N. Robinson, CPA, LL.M.

About 40 years ago the United States decided to harness the power of computers to achieve tax compliance. In doing so, Congress required banks and brokerage companies to report their account holder’s income to the IRS on computerized 1099 forms. Then, IRS computers matched taxpayers’ reported income against their reported income. Over time, however, tens of thousands of affluent Americans chose to avoid these tax reporting rules by depositing their money offshore with banks and brokerage companies that did not report to the IRS. The IRS finally discovered the magnitude of the tax avoidance problem after disgruntled bank employees “blew the whistle” on two foreign banks.
 
Today, over 14,000 taxpayers have come forward and requested amnesty for not reporting foreign-based income on their income tax returns or the existence of their offshore accounts on Foreign Bank Account Reports (FBARs). This influx of amnesty cases has strained the IRS’s audit capabilities. Nationwide, one IRS agent in ten is presently confirming the income tax returns and FBARs of those who came forward voluntarily. And more agents are being hired and trained.
 
Of the 14,000 taxpayers who came forward, however, only about 1,300 taxpayers held UBS accounts with balances worth more than 1,000,000 Swiss Francs – just under $1 million. At least 3,000 additional taxpayers with UBS account balances worth more than 1,000,000 Swiss Francs did NOT request amnesty. When banks and brokerage houses in addition to UBS are considered, it is quite possible that the total number of delinquent taxpayers with substantial unreported offshore account balances approaches 50,000. The total number of delinquent taxpayers may be a multiple of 50,000.
 
The IRS is working vigorously and effectively to identify these additional delinquents.  For example:
 

• The IRS reached an agreement with UBS whereby UBS agreed to turn over the social security numbers of all United States account holders with accounts worth more than 1,000,000 Swiss Francs by about mid February, 2011. Under this agreement, the IRS will be able to identify the 3,000 additional account holders who chose not to come forward under the Offshore Voluntary Disclosure Program that officially terminated on October 15, 2009.

 

• Congress and the IRS have effectively put pressure on foreign banks to avoid further complicity in American tax evasion. Thus, Bank Leumi, Israel’s largest bank, recently notified its United States account holders by letter that they must report their account holdings to the Internal Revenue Service. There are additional credible reports that other foreign banks have sent similar letters to their bank customers.

 
This dramatic news will be discussed at our December 9, 2010 conference on the IRS Offshore Voluntary Disclosure Program. This conference is open to practitioners and the public without charge.
 
Following the IRS’s prior policy of gently encouraging compliance, IRS personnel initially agreed to participate in our December 9, 2010, conference. Yesterday, IRS personnel suddenly revoked their participation under direct orders from Washington. This implies that the IRS is uncertain as to how to treat the next wave of FBAR delinquents. We therefore cannot rule out the possibility that the IRS is considering taking forceful criminal action, wherever possible, against income tax and FBAR delinquents.
 
We have decided to hold our conference on the IRS Offshore Voluntary Disclosure Program without IRS participation. Our mission is to help taxpayers come into compliance with the tax and banking laws.  Consistent with our mission, we have an obligation to the tax practitioner community and to the general public to present whatever information we have – and to speculate appropriately on the IRS’s unwillingness to participate at our conference.
 
For information on the conference and how to attend, please visit http://www.masstaxlawyers.com/events_and_seminars//?EventID=103.
 
Note: The statistical information contained in this article was derived exclusively from the public pronouncements of knowledgeable IRS officials and from news articles published in reliable media sources. We are, of course, responsible for the inferences we have drawn from this information.

Attorney Morris N. Robinson, CPA, LL.M., is Managing Director of Boston tax litigation law firm M. Robinson & Company, P.C.