Understanding the tax laws surrounding offshore accounts is vital, but it can be as confusing and overwhelming as it is important. There are many ways a person can commit tax crimes in relation to offshore accounts, often without knowing. Unfortunately, in the eyes of the IRS, not knowing the law, misunderstanding how the law relates to your offshore accounts or even not knowing the accounts existed still means you are responsible for these crimes.
Here are several ways you might unintentionally commit tax fraud.
1. You simply didn’t know
It’s important to know if you have any investments in an offshore account or what they are because they may need to be reported on an FBAR. If you didn’t file this report and make the payments necessary to keep the accounts in compliance with IRS regulations, then you may find yourself facing penalties of up to $10,000 or 50% of the amount. Forgetting that you had these accounts or being mistaken about the balance can still land you in just as much trouble with the IRS as if you did it willingly.
2. You chose not to know
Reckless disregard and willful blindness could get you in just as much trouble as knowingly committing tax fraud. Sometimes taxpayers can commit a crime through willful blindness if they intentionally avoid learning about an IRS requirement, such as failing to read their tax forms. If you willfully continue to manage an offshore account after being notified that taxes weren’t withheld from interest, dividends or capital gains on your account, it could constitute reckless disregard. Being found guilty of either of these two crimes could result in your accounts being frozen, wages garnished, property seized or worse. However, there are many ways in which taxpayers who have been victims of scam artists may also fall under these categories.
3. You thought you knew
If you’ve been scammed into committing a tax crime, there are a few things you can do. Contact the IRS immediately and explain your situation. In an instance where you committed the crime unknowingly, you should contact them as soon as you can, but be sure to document everything that happened. Whether on your own or with the help of a lawyer you should look into filing an amended return with the IRS.
The IRS’s Voluntary Disclosure Program is an option, one of many. But while the IRS has many paths to get you back on the right side of the law, beware of scammers who will pretend to be with the IRS. They may take advantage of people who are scared of fines, garnishments or prison time.