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Offshore account compliance: recognizing the challenges

Every year, the IRS releases what it calls a "dirty dozen" list of tax scams. Some of the tax tactics on the list, such as computer phishing schemes or identity theft, are admittedly dubious. The IRS is certainly well within its mission in seeking to prevent tax fraud.

But there are also some items on the list that seem "dirty" only because the IRS is engaging in an exercise in rhetorical point-scoring. In this post, let's look at one item in particular that affects taxpayers in Texas and across the country - namely what the IRS calls "hiding income offshore."

To refer to issues involving offshore account compliance as "hiding income offshore" is obviously a very pejorative way of putting it. After all, in a global economy, U.S. taxpayers have foreign bank accounts and other offshore financial holdings for a variety of reasons. To lump all taxpayers with foreign accounts together under the label of "hiding income" is simply not a fair statement of reality.

Indeed, even the IRS, in its own description of offshore account issues, seems to be aware of this. The agency notes on its website that "there are legitimate reasons for maintaining financial accounts abroad."

It's also true that the reporting requirements for these accounts are often quite complicated. Many taxpayers are honestly trying to comply with what to them seem like a myriad of regulations. They aren't necessarily seeking to, as the IRS puts it, "hide income."

Moreover, recent events have generally made the reporting requirements more challenging to meet than in the past. There have been multiple voluntary disclosure initiatives in the last few years, each with its own specific rules. And new requirements triggered by the Foreign Account Tax Compliance Act (FATCA) are now coming into play as well.

Source: "IRS Releases the Dirty Dozen Tax Scams for 2013," IRS.gov, 3-26-13

To learn more about our firm's practice, please visit our offshore account section.

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