Like shelters in a storm, tax havens have helped people tuck money away and protect it from outside threats. Some may wonder how this works, but according to financial experts, it isn't actually that hard. A person would simply set up a foreign corporation and open an account in that corporation's name. The Internal Revenue Service has a hard time tracking the money from the corporation back to an individual. Current estimates are that $31 trillion in American assets are sitting in offshore bank accounts.
It was recently reported that the IRS is making increased efforts to connect the offshore accounts to American taxpayers. A two-pronged effort is underway. The first prong is amnesty for those who report their foreign earnings. The taxpayer would still need to pay the back taxes and a penalty. The second prong is increased pressure on the banks of other nations to release the names of their American bank account holders. Apparently that strategy is working.
In 2010, Congress passed the Foreign Account Tax Compliance Act which imposed a tax on overseas banks that didn't turn over American customer names. The IRS was able to negotiate with UBS in Switzerland for the release of names. Other banks in the Caribbean and in Asia are following suit.
The amnesty is apparently working as well. Since the time when it was first offered, about 33,000 people have taken advantage of the offer. The IRS estimates that it has collected $5 billion in revenue from back taxes.
Anyone who wishes to take advantage of the amnesty program would be wise to consult with a tax attorney prior to doing so.
Source: MPR News, "Tax Evaders Beware! Money's Getting Harder To Hide," Jim Zarroli, Aug, 8, 2012
Our Twin Cities law firm represents clients with IRS issues related to back taxes and offshore bank accounts similar to the tax issues described in this post.