I read an article in the Miami Daily Business review written by Richard Serafini who is of counsel with Ruden McClosky and a member of the white collar practice group in conjunction with associate A.J. Yolofsky who is a member of the firms litigation practice group.  The article should raise the hair on the back of your head if you have not completed your IRS filing of the annual FBAR form this year.  If you have never done it I can only say, check into the current programs that they do have.  As the US tries to reduce the debt, I hear the words “cash call”  for any and all ways that the IRS can get into your pocket and the penalties are huge.

Let’s sum it up and say you had $1,000,000 in the bank in 2001 when you came here.  You partied, never reported the balance and spent it all only to get a note saying that due to some investingation into your past and suspected “crime” (you did not report foreign income”)  Panama turned over the bank records to the IRS.  Well, here you are having spent all the money and you get a bill for $500,000 in penalties, ouch!  Here is what the article said.

With increased foreign cooperation and in the wake of two tax amnesties, the federal government is likely to expand prosecutions involving undisclosed offshore bank accounts used to avoid payment of income taxes to the United States. Not only are taxpayers and foreign bank officials targets, but U.S. financial professionals who assisted their clients in avoiding taxes may face prosecution.

The use of offshore bank accounts to hide wealth is a longtime tradition of the wealthy. It matters little whether the wealth was accrued through legal or illicit means. People of great wealth often used foreign bank accounts to avoid paying U.S. income taxes.

Because of its centuries-long tradition of bank secrecy laws, Switzerland often comes to mind as the most popular location for hiding income and avoiding U.S. income taxes. Switzerland and other offshore tax havens have developed sophisticated banking industries in no small measure because of secrecy laws and a willingness to become complicit in the efforts of U.S. taxpayers to avoid payment of income taxes.

However, a sea change occurred in the U.S. government’s attempts to combat overseas tax fraud early last year. The United States sued Swiss banking giant UBS to obtain information about private clients of the Swiss bank who were using UBS accounts to shelter funds and avoid the payment of required taxes to the United States. As a result of a settlement between the United States and Swiss banking authorities, Swiss banks began to provide the Internal Revenue Service and the Department of Justice with previously undisclosed private banking account information for thousands of potential tax cheats.

The IRS requires U.S. taxpayers to disclose on their 1040 forms whether they hold any interest in a foreign bank account. Schedule B of the 1040 contains a simple question about whether the person filing the tax return has an interest in such an account.

In addition, the IRS requires taxpayers with interests in or signatory authority for foreign bank accounts with an aggregate value of $10,000 at any time during the tax year to file with the Department of Treasury a foreign bank and financial accounts report or FBAR. Failure to file this document is potentially a criminal offense against the United States. However, historically, if the taxpayer was unaware of the requirement to file this report but filed upon learning of the requirement, the IRS would accept the filing and the Department of Justice would forgo the bringing of criminal charges. While criminal prosecutions for the failure to file the FBAR form are rare, a willful failure may serve as the basis for tax fraud or conspiracy to commit tax fraud prosecutions.

In civil enforcement, the failure to disclose foreign bank accounts and file the FBAR form may lead to significant monetary sanctions. Often, these taxpayers confront confiscatory penalties. In addition to interest on back taxes and penalties on the unreported income, the FBAR penalty is 50 percent of the balance in the unreported account for each year the taxpayer did not file the report. These penalties often can leave the taxpayer owing significantly more than was in the accounts.

To induce taxpayers to disclose secret offshore tax havens, the IRS has instituted two amnesties for account disclosure: one in 2009 and the second expiring Aug. 31.

The first program looked back to the previous six-year period and assessed taxes and interest; 20 percent of the tax amount due on underreported income or 25 percent of the tax due where the taxpayer had failed to file a return; and a penalty equal to 20 percent of the highest account balance during the period, which under certain limited circumstances would be limited to 5 percent. Additionally, the Justice Department refrained from bringing criminal charges.

Due to the unexpected response, the IRS instituted the current version. The amnesty for tax years 2003 to 2010 is slightly less forgiving than its predecessor. For example, it includes a 25 percent penalty on the highest balance during the period. Again, the Justice Department is foregoing prosecution.

U.S. knowledge of an account makes taxpayers ineligible for amnesty. Because the UBS settlement involved the disclosure of a large amount of information by Swiss banks about their account holders, some taxpayers with undisclosed accounts may find themselves facing an unenviable dilemma — disclosing to the IRS, which already knows, or continuing to hide.

As international cooperation with U.S. law enforcement continues and increases, it is likely that U.S. officials will learn about accounts in additional foreign tax havens, and it’s probable that the number of prosecutions will expand greatly. The types of cases that the United States has brought thus far include willfully violating foreign bank account reporting requirements (United States v. Schiavo), conspiracy to defraud the IRS (United States v. Bagios and United States v. Gadola), and false statements in a tax return (United States v. Bhasin).

Charges have focused on taxpayers and foreign bank officials who have facilitated the hiding of reportable accounts and income. Additionally, any U.S. financial professionals who aid or facilitate their clients’ use of undisclosed foreign bank accounts to unlawfully avoid may face prosecution. In short, the area appears ripe for more law enforcement activity.