If you’re a US citizen but you live overseas, the IRS may be taking a closer look at your personal finances. In recent years the IRS has formally cooperated with governments in Great Britain, Canada, Australia, and Japan.
You may have heard the news about UBS banker Bradley Birkenfeld and financial consultant Mario Staggl. They’re being prosecuted by the IRS for helping a U.S. billionaire hide his wealth overseas to avoid taxes.
The IRS has even tried to extradite Staggl, a native of Liechtenstein. When he failed to show up for a hearing in May, the U.S. government branded him a fugitive.
Since 2001, governments in Europe and Asia have been quietly cooperating with the IRS, often using legal tools that were meant to fight terrorism. Not only are they flushing out tax evaders, they’re also targeting honest working expatriates (U.S. citizens who reside or work overseas) who may not know the laws.
You don’t have to be a billionaire to draw fire from the taxman
The IRS points out that an estimated 700,000 U.S. taxpayers are “concealing” assets in foreign accounts, but the details show a different picture. Many of these U.S. citizens are honest Americans who happen to live and work overseas, and prefer the convenience of a bank in the country where they live.
This group includes members of the armed forces, employees who have been given overseas assignments by their company, and recent graduates who work abroad for a year or two for the experience.
But if you have more than $10,000 in a foreign bank account, you must disclose it. If you don’t, you may be forced to pay up to half your bank balance, and you could face up to 10 years in prison.
In the past, this law was rarely enforced. But now the IRS is building a stronger presence on foreign soil, and collaborating with many other governments. The IRS set up formal cooperation programs with Britain, Australia, Japan, and Canada in 2004. Now they even share work space in a multinational tax-collecting unit in London.
This collaboration with Great Britain, especially, opens the gateway to all of Europe. In 2005, the European Union enacted legislation that allows any EU nation to obtain bank records and prosecute tax evaders from all other countries in the European Union.
It’s possible that Britain could obtain your financial information and share it with the IRS.
What is your best protection against a tax collecting agency with a global reach?
No matter where you happen to live, work, or store your assets, as a U.S. citizen you’re still subject to the same tax laws. But this can be a good thing, because it means that an experienced tax attorney can help you anywhere in the world.
Even if the IRS has taken an interest in your foreign assets, you still have all the same tools available to solve international tax problems. A tax attorney may be able to advise you on how to stay within the law, and prevent a lot of tax problems before they occur.
And if you’re already being pressed for back taxes and other problems, a tax attorney can also investigate filing an Offer in Compromise on your behalf. Hiring a tax attorney is especially useful if you live overseas and can’t return to the U.S. to file your documents in person.
If you can find a tax attorney who has helped U.S. citizens living abroad, you can take advantage of the same protections every citizen is entitled to. A tax attorney may be able to speak to the IRS in your absence, and protect your U.S.-based assets from being seized by the government while you’re away.
Working overseas will affect your tax circumstances , and you need to be prepared for increasingly complex tax problems. For now, the U.S. senate’s permanent subcommittee on investigations is pointing its telescopes at Liechtenstein banks. But this is only part of a special probe into tax evasion, and you may expect more of the same in the future.
An IRS agent recently spoke to Business Week about the new international IRS dragnet. “We’re better positioned than ever to tackle these things,” he said.
On July 1, 2008 a judge ordered the Swiss bank UBS to turn over the names of wealthy clients. On July 17th the IRS put in a formal request to the Swiss government for “Administrative Assistance” in the case.
Even if you’re not wealthy, your international assets are being watched by the IRS.