Holding personal resources in an offshore account was once a top tax avoidance strategy. However, that has shifted in recent years. While some people may continue to hold resources in international bank accounts, they will typically derive far less protection from doing so than they would have in years past.
The Internal Revenue Service (IRS) is well aware of the practice of holding resources in international bank accounts for tax minimization purposes. In fact, the federal government has adopted policies that might lead to the prosecution of individuals who hold resources internationally and do not disclose those assets. People may think that the IRS won’t learn about their offshore holdings, but in most cases, the other country shares that information with the United States.
Foreign financial institutions now provide asset information
International banking used to occur on a nation-by-nation basis. After years of people and businesses abusing tax loopholes, numerous international treaties have forced drastic changes in the financial sector. The federal government expects taxpayers to report all international bank accounts and foreign assets worth $10,000 or more to the U.S. Treasury Department’s Financial Crimes and Enforcement Network (FinCEN).
Failure to do so could lead to criminal charges. The IRS won’t have a hard time finding evidence of most offshore assets. There’s now an expectation that financial institutions in most countries annually share information with tax authorities in other nations. There are only a handful of countries that do not currently participate in international financial transparency programs. Most of those countries have unstable circumstances that could put potentially any sizable investments at risk.
Those with offshore bank accounts must comply with reporting requirements by providing information about those assets on their income tax return. Someone who fails to report their foreign assets could potentially face prosecution. Even accidental violations of the law can lead to fines of up to $10,000 per offense. Intentional violations could lead to $100,000 in fines or forfeiting half of the account’s balance.
Learning more about changes to tax regulations, and seeking legal guidance accordingly, may help people avoid unintentional violations that could lead to fines or possibly even criminal prosecution.