Top 6 Tax Scams and How to Protect Yourself

No. 5: Hiding offshore accounts

This is not a scam that can be done to you, but one that quite a few Americans engage in. Even though US citizens are allowed to maintain some of their finances abroad, they are a series of reporting requirements they need to comply with. Anyone who fails to comply with these said requirements is in breach of the law and can be subject to substantial fees or penalties and, in some cases, even criminal prosecution. Here is what IRS says about this scam:

“While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS works on a wide range of international tax issues with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected billions of dollars in back taxes, interest and penalties so far from people who participated in offshore voluntary disclosure programs since 2009. It is in the best long-term interest of taxpayers to come forward, catch up on their filing requirements and pay their fair share.”