Tens of thousands of Americans with offshore bank accounts could now potentially be facing prosecution under the Foreign Account Tax Compliance Act (FATCA). More than 30,000 taxpayers have, since 2012, disclosed foreign accounts under a streamlined IRS program which offered a grace period against additional penalties in exchange for future compliance with offshore account reporting and payment regulations. Those taxpayers living in the U.S. ended up paying five percent of their previously undisclosed assets pursuant to the program; overseas residents paid nothing at the time of disclosure.
Some taxpayers who chose to disclose their accounts may have assumed that they were receiving blanket immunity under the program so long as they came into compliance with U.S. tax reporting and payment laws, but that isn't actually the case. The "fine print" of the program contained no guarantee against future prosecution for any tax fraud or nonpayment previously committed.
The Justice Department's stand
Lawyers at both the United States Justice Department (DOJ) and the IRS are now combing through tax returns and disclosure statements ensuring that the innocent reasons for no prior disclosure of and tax payments on those accounts actually hold up. Justice Department trial tax attorney Nanette Davis told the New York University Tax Controversy Forum that her division is looking closely at the information disclosed under the program, and is "scrubbing it for leads" that may result in prosecution for tax fraud and other tax-related crimes.
The DOJ and IRS are making it clear, however, that this additional scrutiny and risk of prosecution doesn't apply to the approximately 54,000 people who disclosed foreign offshore accounts under the more stringent program that has been in place since 2009. Those people faced penalties as high as 27.5 percent of previously undisclosed assets but were given immunity from future government action.