Tax Fraud - Offshore Tax Shelters

Does hiding your income in offshore bank accounts sound like a great way to avoid paying taxes? If you said yes you may want to find out more before you try it yourself.

One of the most popular methods for avoiding federal income taxes is to open an offshore bank account in "tax-haven" countries and funnel money into it. This is illegal and the IRS has stepped up their enforcement for this particular tax avoidance fraud. The IRS is concentrating its efforts in this area and has done quite well in recovering a large amount in taxes, interest and penalties associated with illegal offshore accounts. The IRS says it will continue to aggressively pursue taxpayers and promoters in this area. Visit their website for more information on this subject, Examples of Abusive Tax Scheme Investigations - Fiscal Year 2009.

The IRS is on the lookout for offshore accounts

In other words, if you think you can easily move your money to a little island in the Caribbean to avoid paying taxes think again. You won't be able to "fly under the radar" and get away with it because the IRS is too busy and has too few resources to track you. The IRS is on the lookout for this kind of activity and they know just what to look for. Unfortunately, the promoters of these tax avoidance schemes are still out there selling their workshops, books and DVDs. Please don't fall for this all too tempting method for getting out of paying your legal share of federal taxes. Don't make it any more lucrative for these con artists than it already is. They gain from your pain, suffering, back tax penalties and possible federal jail time.

Offshore Tax Evasion Schemes

Offshore tax evasion or taking your money to another country to avoid paying taxes can take many forms. Some offshore schemes can be as simple as taking unreported cash receipts and flying to a tax country that acts as a tax haven and depositing the cash into a bank account. Others are more elaborate involving various domestic and foreign trusts, partnerships, nominees, etc. The following list of offshore tax schemes comes from the IRS's publication Abusive Offshore Tax Avoidance Schemes - Talking Points.

• Foreign trusts
• Foreign corporations
• Foreign (offshore) partnerships, LLCs and LLPs
• International Business Companies (IBCs)
• Offshore private annuities
• Private banking (U.S. and offshore)
• Personal investment companies
• Captive insurance companies
• Offshore bank accounts and credit cards
• Related-party loans

How do tax evaders access their offshore account funds?

Although the unreported funds sitting in the offshore bank account are earning interest or being used for investment purposes, most of the time the taxpayer needs access to the money for their use. There are many ways to get the funds back to the taxpayer. The following list of methods used to repatriate funds back to U.S taxpayers comes from the IRS publication Abusive Offshore Tax Avoidance Schemes - Talking Points.

• Credit cards which simply draw on the U.S. taxpayer's offshore account
• Loans from mystery offshore lenders
• Loans from domestic lenders in amounts beyond the taxpayer's apparent borrowing power (may be secured by offsetting deposits of offshore funds)
• Use of property titled to offshore entities at zero or below-market rental
• Bogus transactions designed simply to transfer funds to or from offshore entities, such as sales of property to offshore entities in jurisdictions where it is unlikely the property will actually be used or sold
• Gifts
• Scholarships for taxpayer's children
• "Payable Through" accounts

Taxpayers who use offshore tax shelters that illegally dodge tax payments, when caught, are liable for taxes, interest, and civil penalties. Violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty and/or criminal prosecution. Civil fraud can include a penalty of up to 75% of the underpayment of tax from fraud, on top of the original taxes owed. Criminal convictions of promoters and investors may result in fines up to $250,000 and up to five years in prison.

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