IRS Plans Surge in Foreign Audits for 2009

The outline of IRS plans for 2009 is coming more into focus every day, and it’s not a pretty picture.

Speaking before a tax conference on December 8, IRS Commissioner Douglas Shulman cited the stumbling economy as providing the IRS “an even clearer mandate” for stricter enforcement of U.S. tax laws.

At the top of the IRS hit list are Americans with unreported foreign bank accounts.  To find them, the IRS plans to make greater use of information it receives under its “Qualified Intermediary” (QI) agreements with foreign banks.  It’s also made more resources available to follow up leads received by the IRS Whistleblower Office.  Turn in someone you suspect of tax evasion, and you can receive a whopping 30% of the amount the IRS eventually collects. 

Shulman also promised to crack down on jurisdictions that have what he calls “notoriously strict” bank secrecy laws.  (He conveniently ignored the fact that these laws exist to protect legitimate depositors from kidnapping, extortion, corporate espionage, and other financial threats.)  He said that stricter QI regulations, along with an expanded use of so-called “John Doe” summonses would help the IRS identify U.S. taxpayers with offshore accounts. 

(In a John Doe summons, the IRS doesn't know the identity of the taxpayer under investigation. The IRS issues such summonses to banks, credit card companies, and other businesses to identify persons who may potentially be involved in tax evasion, tax fraud, or money laundering.)

Unfortunately, these actions are also having a consequence that the IRS no doubt welcomes.  Over the last several months, dozens of offshore banks have changed their policies to prohibit U.S. persons from holding accounts there.  Thousands of depositors, some with accounts dating back 20 years or more, have been forced to close their accounts and move their funds elsewhere.

If your offshore bank has and informed you that you must close your account due to restrictions on U.S. account-holders, you have several options.  Ask the bank if it would continue to accept your business if the account:

• Is held through an offshore business entity, such as an offshore LLC.
• Is held by an offshore trust or offshore annuity, so that the beneficiary of the trust or annuity can no longer provide investment instructions for the account.
• Is managed by the bank or an external portfolio manager, so that investment instructions don’t come from the United States.

If you need assistance with this process, please contact me at info@nestmann.com.  While the number of offshore banks willing to deal with Americans is shrinking rapidly, a few still accept U.S. business.  Depending on your needs, we may be able to assist you.

Copyright © 2008 by Mark Nestmann