The IRS is cracking down on individuals with offshore accounts who have continued to withhold the declaration of the offshore funds. This is evidenced by the jury’s verdict in the case of Carl R. Zwerner on May 28, 2014. The IRS is not exclusively focusing on Swiss accounts. They are interested in information about the accounts of US Citizens and residents in financial institutions around the globe. So far more than 60 countries have complied and provided information. IRS investigations are underway in previously protected countries like Isle of Mann, Israel, Lichtenstein, and Singapore.

In Zwerner’s case, the jury established that the taxpayer consciously failed to file the Report of Foreign Bank and Financial Accounts forms for three out of the four years charged. Additionally, the Jury found that Mr. Zwerner was not fit for the IRS’s 2009 Offshore Voluntary Disclosure Program and its limited penalty structure. In this case, the IRS is seeking penalties of 50 percent of the account for all of the involved years. Even though the Judge will ultimately decide the penalties, the taxpayer’s exposure is in excess of 100 percent of the undisclosed account.

Previous to Zwerner’s case, the IRS has restricted penalty requests to one year or 50 percent of the account. However, it can be expected that FBAR penalties in excess of 100 percent will become standard. As the identities of Credit Suisse customers become known to the IRS, we expect IRS audits and projected penalties to increase rapidly.

In conclusion, it should be noted that Mr. Zwerner may have been able to benefit from the Offshore Voluntary Disclosure program if he had he taken more timely action. Therefore, it is still possible for all taxpayers with undisclosed foreign accounts to act rapidly before their names are disclosed to the IRS. Read more…

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