Criminal Investigations for Unreported Offshore Accounts in Washington DC

Taxpayers with foreign financial accounts are expected to report them to the IRS every year. Although it is rare, criminal investigations of unreported offshore accounts in Washington DC are possible if your actions were willful. Speak with an experienced offshore accounts attorney to learn if you have any criminal exposure.

Checking for Criminal Investigations

When the IRS Criminal Investigation unit is reviewing pre-clearances for voluntary disclosures, they will look through their records to see if that taxpayer has an open file in a criminal investigation. If one exists, the IRS will deny the taxpayer a pre-clearance. If the IRS approves the pre-clearance, that means there is not an active criminal investigation.

Recommending Criminal Investigation

The IRS looks for badges of fraud on behalf of the taxpayer, and whether there was an intent to violate any tax laws punishable by criminal penalties that prosecutors could prove beyond a reasonable doubt. An examiner might end up not recommending criminal investigation if it is difficult to prove the taxpayer intended to commit fraud.

The more badges of fraud and affirmative acts that the IRS has proof of, the more likely it is that there would be a criminal investigation for unreported offshore accounts by a taxpayer in Washington DC. If the evidence is clear, the Department of Justice Tax Division may decide to criminally prosecute the taxpayer in U.S. District Court.

Indicators of Fraud

If a taxpayer purposely understates their tax liability, there will often be identifiable clues on their tax return that are known as “indicators of fraud.” However, the indications by themselves do not prove that fraud was committed. A sudden and unexplainable increase in someone’s net worth is an indicator of fraud that might warrant further investigation. Other indicators include:

• A large increase in expenditures
• Bank deposits that do not fit with the reported income
• Personal deductions that may have been listed as a business expense
• Failure to cooperate with an examiner
• Dealing in cash
• Engaging in illegal activity
• Certain documents looking like they may have been changed or in some way falsified

There are also affirmative acts of fraud that prove an action was deliberately taken for the purpose of deceit or concealment – in other words, to make things seem other than what they are. Fraud cannot be established without at least one of these affirmative acts. A few examples of this include omitting specific items on a filing where other similar items were included, concealing assets such as bank accounts, hiding the source of receipts, or failing to deposit receipts to business accounts.

Evidence of Fraud

It is rare to have direct proof that fraud has occurred. Instead, it must typically be proven through circumstantial evidence. Fraud generally involves one or more of the following elements:

• Deceitful actions
• Misrepresentation of material facts
• Documents that have been altered
• Evasion (i.e., diversion or omission)

In attempting to learn if there was a purposeful evasion of tax obligations, courts will analyze badges of fraud. They will examine a taxpayer’s entire course of conduct, evaluating each badge of fraud with the appropriate weight. It is the substance and quantity of the evidence that determines if fraud was committed.

An examiner will create a penalty narrative that will describe all the badges of fraud present in the case, as well as include any other instances of the taxpayer being deceptive or misleading towards the government.

The Risks of Disclosure

One of the main goals of a lawyer is to evaluate whether an offshore disclosure through a voluntary disclosure is appropriate, which would only be if the Washington DC taxpayer has a risk for criminal investigation and prosecution. If the taxpayer does not appear to have intent or willfulness, the attorney would advise that disclosure is not necessary. There are large penalties associated with making a voluntary disclosure, such as civil fraud which is 75% of the tax balance for one of the highest years, as well as the FBAR penalties, so it would not be in the taxpayer’s best financial interest to submit a voluntary disclosure if the taxpayer is not at risk for a criminal investigation.

If someone does not disclose all foreign accounts and unreported income, does not include an accurate and detailed narrative with a streamlined disclosure, or is found to be willful in their conduct, then any of that can be used against them to implement civil or criminal penalties.

Confer with a Washington DC Attorney About Criminal Investigations for Unreported Offshore Accounts

If you did not report a foreign financial account for one or more years, now is the time to take action to evaluate and mitigate your risks of criminal exposure. Learn more from a lawyer about criminal investigations for unreported offshore accounts in Washington DC.