From the tax law firm of David W. Klasing

IRVINE, Calif., October 25, 2022 /PRNewswire/ — The US Senate has its eyes on the use of foreign banks and “shell banks” to dodge FATCA reporting. Reporting under FATCA is required for any overseas investment or business participation, but many investors and business people have set up investment and business vehicles and shell companies to evade income taxable abroad and avoid information reporting requirements that would “flag” their evasion.

However, with the Senate having produced a report on this, it is likely that additional IRS resources will be used to fill these gaps and potentially sue investors and businesspeople for these issues. If you are potentially facing legal issues related to the shell bank, you should seek legal advice immediately.

International dual-licensed tax lawyers and CPAs from tax law firms in David W. Klasing can help you with all the fees and legal issues you face due to your foreign investments and business assets. Call us today to get started at (800) 681-1295 or click here to schedule a discounted initial consultation.

How “Shell Banking” evades FATCA reporting requirements

FATCA (Foreign Account Tax Compliance Act) aims to combat tax evasion by requiring account holders to declare their offshore assets. Form 8938 must be filed for any offshore account with a total value of $50,000 or more. However, a fairly popular “dummy banking” technique has been used to hide these assets and avoid reporting requirements.

Since FATCA only requires reporting when U.S. persons hold these offshore accounts, many investors instead use a shell company to hold these accounts. When these companies are registered as foreign financial institutions, they can essentially work as intermediaries who are not US persons. This means offshore account havens like Swiss, Bermudaand the British Virgin Islands potentially no need to report transactions or investigate whether the money came from a US person.

Senate Report on Shell Banking FATCA Evasion

This technique was described in a recent Senate report that has been reported by multiple sources. In that report, the US Senate noted that it knows about this system, sees the loopholes people are using, and wants the IRS to use some of its new funding to work to close them.

Under the Inflation Reduction Act, $80 billion in funding went to the IRS for increased enforcement of the Tax Code. We have written about this funding and the potential increases in audits and criminal tax prosecutions that could arise for many investors and business people. This is another specific area where these audits and criminal tax prosecutions could be on the rise.

At the tax law firm of David W. Klasing, our international accountants and tax lawyers can help you deal with the IRS and any new audit or criminal tax risks you may face due to FATCA compliance complications. If you are currently using a program like this to avoid FATCA reporting, our international lawyers and CPAs can also help you get back into compliance to avoid potential legal issues, including the risk of an audit, tax investigations criminal, prosecution.

The report also notes that the U.S. tax system operates on voluntary compliance and that additional IRS resources should be devoted to these issues, particularly with respect to monitoring and identifying issues as well as coordinating with tax authorities. international institutions to discover non-compliance – more details below.

Brockman case example

The Brockman case is one of the cases that have been written about dealing with this scheme. In this case, a whistleblower reported that a bogus banking system like this was used to avoid reporting more $200 million taxable income that has been moved and held offshore. In this case, the defendants Robert Brockman and Robert Smith were prosecuted, with Brockman ultimately charged with failing to report $2.7 billion in income and take intentional steps to hide that offshore income.

The Senate included a discussion of this case in its report as an example of how this fictitious banking scheme was used for tax evasion purposes. He also discussed some of the organizational failures that allowed this case and others like it to go undetected. This further underscores the possibility that the IRS will soon launch a crackdown on this type of bank evasion and bogus reporting.

The Senate report called the case “the largest tax evasion case brought against an individual in the history of the United States.” It ultimately contained 39 counts of criminal tax offenses for tax evasion, failure to file required foreign information returns, money laundering, and more.

Foreign Bank Reporting Requirements

Another avenue that the Senate report says should have been taken is that the Swiss bank involved in this matter potentially would have had to report the funds under FATCA anyway. Under rules for foreign banks that partner to enforce FATCA, they only have to report transactions when they have “reason to know” that the money has a source in the United States. The Senate argues that even though the money was transferred through a shell company acting as a financial institution, the Swiss bank might still have had “reason to know” that the money had an American source.

If these banks begin more rigorous investigation and enforcement to protect themselves, the IRS might not even need as much effort to strengthen its own enforcement, and these schemes could be uncovered through the FACTA reporting systems already in place. square.

Essentially, the Senate would like to see the onus of investigation shifted to those offshore institutions that can more easily spot transactions that come through their doors. If this were to happen, more cases of offshore tax evasion and failure to file required foreign information returns could be uncovered more easily.

This risk also adds heightened urgency for anyone facing a potential offshore IRS criminal tax investigation, foreign financial account audit, or criminal tax prosecution for sham banking schemes. Contact our international dual-licensed tax lawyers and accountants today.

Call our international tax lawyers and CPAs today

If you are concerned about your own FATCA compliance and offshore holdings, contact our international dual-licensed tax lawyers and CPAs today. To learn more about our services, call the tax law offices of David W. Klasing today at (800) 681-1295 or click here to schedule a discounted initial consultation.

To note: As long as a taxpayer who has deliberately committed tax crimes (potentially including unfiled foreign information returns coupled with a positive evasion of U.S. income tax on foreign income) self-reports the fraud tax (including an unfiled returns scheme) through a domestic or offshore voluntary disclosure before the IRS commenced an audit or criminal tax investigation/prosecutionthe taxpayer can normally be successfully brought back into tax compliance and receive an almost guaranteed pass for criminal tax prosecution and simultaneously often receive a pause on civil penalties that would otherwise apply.

He is imperative that you hire a experienced and reputable tax defense lawyer to guide you through the voluntary disclosure process. Only an attorney has the attorney’s client privilege and work product privileges that prevent the very professional you hire from being potentially forced to become a witness against you, in particular when they have prepared the declarations which must be modified, during a tax audit, an investigation or a subsequent criminal prosecution.

In addition, only a lawyer may engage you in voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only a trained criminal tax defense attorney fully understands the risks and benefits of voluntary disclosures and how to protect yourself if you do not qualify for voluntary disclosure.

As tax attorneys specializing in criminal tax defense, Kovel CPA and EA, our firm provides a one-stop-shop to efficiently achieve the optimal and predictable results that protect your freedom and net worth simultaneously. Check out our testimonials to see what our customers have to say about us!

Types of Overseas Voluntary Disclosure Programs

If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported by a IRS or State Tax Administration Audit, eggshell check, reverse eggshell auditWhere criminal tax investigationit is in your interest to contact a experienced tax lawyer to determine your best way to return to federal or state tax compliance without facing criminal prosecution.

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Public contact person: Dave Klasing Esq. MS-Tax CPA, [email protected]

SOURCE Tax Law Offices of David W. Klasing, PC

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