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The Internal Revenue Service is seeking bank records for U.S. taxpayers suspected of hiding accounts at a Caribbean lender, opening up a new front in efforts to combat offshore tax evasion.
The IRS said it is investigating whether taxpayers stashed money at Canadian Imperial Bank of Commerce‘s FirstCaribbean International Bank. Instead of pursuing foreign bank records directly, the IRS got court authorization to serve a “John Doe” summons on Wells Fargo & Co., where Barbados-based FirstCaribbean International Bank, or FCIB, maintained a U.S. account.
FCIB could use the Wells account, known as a correspondent account, to wire funds to other accounts in the U.S. and overseas, an IRS agent said in a court declaration. The agent said the Wells bank records will contain information needed to identify U.S. taxpayers with undisclosed accounts. The IRS is seeking account records from 2004 to 2012.
Observers said the move is a tactic tax authorities can use to track down taxpayers who use foreign banks like FCIB that may not be under U.S. jurisdiction.
“The IRS can do this time and time again without the need to build a criminal case against an institution,” said Daniel Reeves, a retired senior IRS official. Mr. Reeves led the agency’s civil offshore investigation into Swiss bank UBS AG,
which in 2009 agreed to turn over thousands of U.S. client account records to the IRS.
The IRS effort, made with help from the Justice Department, is the latest sign that U.S. tax enforcers are targeting hidden offshore accounts in countries other than Switzerland, which has been a focal point of attention to date.
“Our work here shows our resolve to pursue these cases in all parts of the world,” IRS acting Commissioner Steven T. Miller said in a statement.
A Wells Fargo spokesman said the bank “will review the summons and respond as legally required.”
FCIB said it was working with Wells on the matter. “It is our intention to cooperate with authorities in accordance with the respective laws of all jurisdictions involved,” the bank said.
Court filings indicated some information on FCIB’s alleged activities came from an IRS program allowing taxpayers to voluntarily confess about secret accounts.
Individuals accepted in the program, which levies stiff penalties but protects participants from criminal prosecution, have to provide detailed account information for IRS use in investigations.
The IRS said taxpayers making voluntary disclosures have reported the use of hidden accounts at hundreds of banks around the world.
Scott Michel, a lawyer with Caplin & Drysdale in Washington, said he expects the IRS would seek to serve more summonses in coming months, “aimed at a variety of banks around the world and their U.S. customers.”
Americans are ditching their U.S. passports in record numbers, a sign of growing frustration with a system that taxes U.S. citizens on their global wealth whether they live in Montana or Mongolia.
The latest bold-faced names to relinquish their U.S. citizenship include Mahmood Karzai, a brother of Hamid Karzai, the president of Afghanistan, according to federal data released Wednesday.
In total, more than 670 U.S. passport holders gave up their citizenship — and with it, their U.S. tax bills — in the first three months of this year. That is the most in any quarter since the I.R.S. began publishing figures in 1998.
If the recent quarter’s pace continues, 2013 will become a landmark year for saying goodbye to America, tax-wise.
International tax lawyer Phil Hodgen said growing numbers of Middle Eastern investors were ordering their dual-citizen children to dump their U.S. passports if they wanted to inherit family-owned companies without onerous U.S. estate taxes.
While dumping citizenship may seem unpatriotic or smack of tax avoidance to some critics, tax lawyers blame the byzantine complexity of American tax regulations.
Opening a new front in the U.S. crackdown on offshore tax evasion, federal investigators late Monday won court approval for a summons that will force a Caribbean bank to turn over account data for wealthy American clients.
Investigators planned to serve the summons on Wells Fargo, the San Francisco-based bank that maintains correspondent accounts for CIBC First Caribbean International Bank. FCIB is a Barbados-based bank with 18 branches in the Caribbean but no operations in the U.S.
The Justice Department said a federal court in San Francisco approved the summons, which requests account data for Americans who had CIBC accounts from 2004 through 2012.
The big news to hit expat headlines in the last week has been about British Overseas Territories such as Bermuda and the Cayman Islands being forced to agree to new disclosure rules, mainly in a bid to keep Europe and America happy, and in an effort to clamp down on the likes of tax evasion and money laundering.
The so-called British tax havens, like the Virgin Islands for example, have come under fire from nations such as Austria, which in turn have been under scrutiny for their own less than transparent and ‘fair’ tax rules. Austria had in the past accused both the UK and the US of enjoying and utilising their own tax havens, whilst cracking down on everyone else’s.
The good news is that if you’re not doing anything wrong you have nothing to worry about. But as we all know, when big brother starts demanding disclosure of just basic bank account information, it’s a very thin line to then cross before all privacy is eroded.
At the moment if you have money in any of the British Overseas Territories which are, in effect, tax havens – so this includes the Caymans, Virgin Islands, Bermuda, Montserrat, Anguilla, the Turks and Caicos Islands and even the Isle of Man – but does not (yet) include Jersey or Guernsey for example – you may wish to review your bank based holdings if you’re concerned about the new disclosure rules.
According to Reuters, these locations, described by the publication rather derogatorily as: “effectively colonies with some self-government” will now have to “automatically provide details of the ownership of bank accounts, and about how they are used…”
WASHINGTON — The IRS reaches every corner of Charles Allard’s world.
The 48-year-old US citizen, who lives in Hong Kong and works for a financial services company, is among a group of Americans living abroad who are seizing the debate over a US tax code rewrite to push for changing a policy that taxes citizens’ income regardless of where it’s earned.
For many US executives, tax filing can involve more than 100 pages and a multitude of forms, such as those for overseas pensions and foreign tax credits, Allard said. He said he has regularly had to amend tax filings — on top of paying levies to the countries where he lives and works. New disclosure rules on financial accounts held overseas have further muddied the process.
The United States is the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, including an estimated 7 million expatriates.
Allard is among more than 100 people who have written to an international working group of the House Ways and Means Committee, urging Congress to change the laws.
Current rules expose US citizens to double taxation and hefty penalties for mistakes, the letters say. Also, the system reduces competitiveness because many companies avoid US workers because of the added costs they may have to cover, some of those living abroad said in the letters.
U.S. taxpayers were slightly less likely to face an IRS audit last year, according to an analysis issued recently.
The IRS acknowledged that the number of audits of individuals dropped last year, but said examinations of taxpayers with incomes over $200,000 and over $1 million increased in fiscal 2012.
IRS audits dropped 5.3% in federal fiscal year 2012 to 1,481,966 audits of individual tax returns.
The number of IRS employees fell 4.7% to 90,280 in fiscal 2012.
Additionally, TRAC reported the IRS plans to devote 18% less effort auditing businesses with assets of $10 million or more than the tax agency did two years ago.
The National Taxpayer Advocate used confidential data from 2009 tax returns to identify clusters of potential tax cheats in more than 350 communities. The Internal Revenue Service assigns a score to each tax return rating the likelihood agents will collect additional tax money from an audit.
The median scores for sole proprietors in these cities, towns and neighborhoods were among the highest scores in the country:
Brussels is increasing efforts to clamp down on tax avoidance by wealthy investors, including private equity partners and hedge funds, by forcing all 27 EU members to share confidential information on individuals’ investment income and capital gains for the first time.
Europe’s five largest economies – the UK, France, Germany, Italy and Spain – recently agreed to start sharing this information but extending the rules to the rest of the bloc would encompass countries such as Luxembourg and Ireland, where many of the continent’s biggest investment funds are domiciled.
The EU’s taxation commissioner told that he planned to issue a reform proposal “within months” that would require tax authorities automatically to exchange banking details on capital gains, dividends and royalties.
EU agreements on tax sharing have so far applied to interest on savings and deposits, rather than more complex investment structures.
Paris, Berlin and London are showing new-found zeal for closing tax loopholes after leaks exposing the inner workings of tax havens, as well as the explosive admission by Jérôme Cahuzac, France’s former budget minister, that he had lied about holding €600,000 in a Swiss account opened 20 years ago.
On the international stage the reforms were propelled by an aggressive US clampdown that required financial institutions to disclose data on American clients or pay heavy withholding taxes.
Luxembourg, which has historically opposed sharing individuals’ and companies’ banking information, recently abandoned some objections. Austria remains staunchly opposed.
Changes to the tax filing process may be needed to fight tax-refund fraud, the top tax collector told a congressional panel on Tuesday, a day after the federal tax filing deadline.
In steps that could lead to slower processing of tax refunds, Internal Revenue Service Acting Commissioner Steven Miller said a delay in the start of the tax filing season could help fight refund fraud.
So might getting taxpayer information more rapidly from employers, he told the tax-law writing Senate Finance Committee.
Refund fraud, which has exploded in recent years, typically involves using stolen names and Social Security numbers to file phony electronic tax forms and refund claims.
So you made the April 15th deadline but realized that in the rush to file, you got something wrong. What now?
Tax pros say you should come clean about mistakes on your tax return as soon as possible, but exactly how you do so depends on the mistake. In fact, not all errors require filing an amended return, the Internal Revenue Service says.
For instance, people who realize they got their math wrong or who forgot to attach a form should hold off before amending their returns because the agency has others mechanisms in place to spot those mistakes. Chances are those taxpayers will already be getting a letter from the IRS, since the agency scans all returns for math mistakes and missing forms during processing. “The key is there is already a process for handling that,” says Eric Smith, a spokesman for the IRS. “And you don’t need to go through the extra trouble of filing an amended return.”
Those taxpayers who misreported their income, or made any other mistakes that might change how much they owe should file amended returns, says Benson Goldstein, senior technical manager for the American Institute of Certified Public Accountants. That includes people who found a forgotten 1099 form, or who need to change their filing status, deductions or credits. The IRS has matching software to help it spot unreported income, and people who forget to include all 1099s, could get flagged for an audit.
In many cases, taxpayers may be realizing they forgot to claim a deduction they didn’t know was available to them, or on the flip side, claimed a credit or deduction they didn’t technically qualify for. Most taxpayers file amended returns in an effort to get bigger refunds, says Goldstein.
If you think you are due a larger refund, the IRS says you should wait until you receive your first refund check before you file the amended return. (And it’s okay to cash that check.)
But if you end up owing taxes after the change, expect to pay interest and penalty charges, according to the IRS.
Taxpayers generally have three years from the date a return was due to file a Form 1040X. (That means the deadline for amending a 2012 return is April 15, 2016.) Unlike regular tax returns, amended returns must be filed by mail. And if you caught a mistake for multiple years, the IRS requires that each amended return be filed in a separate envelope. They normally take 8 to 12 weeks to process, and taxpayers can check the status of their returns using the “Where’s My Amended Return?” tool offered online by the IRS.
Keep in mind that a change in your federal tax return could impact your state tax bill, so contact your state tax agency about correcting your local return.
What if the IRS never did catch your glaring math error? It may pay to come clean if the mistake impacts how much you owe in taxes, says Goldstein. The IRS has three years to come after you for taxes owed, and longer if it suspects that fraud was involved, he says. You want to show there weren’t any malicious intentions, he says.
