It is common in life that people try to hid things from others. There are many reasons. One common reason why people try to hide assets is to try to avoid having to pay income tax on the income or include the assets in their estate for estate tax purposes.

A 2008 U.S. Senate Report estimated that U.S. Taxpayers used secret offshore accounts to illegally evade at least $100 Billion of Income Tax each year.

It is perfectly legal for U.S. Taxpayers to own assets outside of the U.S. In fact, with few exceptions, U.S. Taxpayers can own assets in almost any country. However, the U.S. Tax Laws require disclosure of such assets.

It is also perfectly legal for U.S. Taxpayers to earn income outside of the U.S. In general, U.S. Taxpayers are taxed on their income regardless of where in the world they earned the income.

For example, it was not illegal for Mitt Romney to own investment accounts in offshore tax havens such as the Cayman Islands, Bermuda, and Luxembourg so long as he disclosed those accounts to the IRS. Further, it was not illegal for Mitt Romney to earn income on those accounts so long as he reported the income on his Income Tax Returns.



In 2008 and 2009 the IRS proceeded with a few programs to encourage U.S. Taxpayers to comply with the existing laws. Among them were some amnesty programs for those who elected to prepare and file the forms (albeit late) that they were required to have filed in prior years. These were referred to as “Offshore Voluntary Disclosure Programs”.

There was a carrot and a stick involved with the “Offshore Voluntary Disclosure Programs”. No doubt, many U.S. Taxpayers have elected to comply under the “Offshore Voluntary Disclosure Programs” in the past 4 or 5 years because they knew that the IRS and Department of Justice either had, or would eventually have, the information anyway. Coming clean would allow them to reduce or avoid penalties and perhaps also avoid criminal prosecution.

Removing the Cloak of Secrecy:

The U.S. Department of Justice and the IRS teamed up to address this. In 2008 the U.S. began investigating UBS. In 2009 they entered into a “deferred prosecution agreement”. UBS admitted guilt on conspiracy to defraud the U.S. and paid $780 million in fines, penalties, etc.

Another aspect of the deferred prosecution agreement (in conjunction with 2009 negotiated agreement between the U.S., UBS and the government of Switzerland) was that UBS disgorged account information to the IRS. The information concerned thousands of U.S. Taxpayers who had been maintaining secret Swiss bank Accounts and illegally evading U.S. Income Tax.

The Department of Justice was not done with UBS. In January of 2013 Wegelin Bank, the oldest private Swiss bank, plead guilty to conspiracy to defraud the U.S. by assisting U.S. Taxpayers hide assets.

Net Result:

The GOA recently reported that the IRS collected $5.5 billion from U.S. Taxpayers who “voluntarily” declared their foreign assets under the IRS’ “Offshore Voluntary Disclosure Programs”. If the 2008 Senate Report was correct (i.e. $100 Billion in lost revenue each year) then this is a mixed victory. However, it is a step in the right direction.




Copyright ©, Keith B. Baker – 2013

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