Tax avoidance may sound shifty, but it is not a crime to use any number of lawful methods to minimize the amount of taxes owed to the IRS. Tax credits, deductions, and certain investments are all considered legal ways to “avoid” taxes. Individuals routinely take advantage of child tax credits, investing in their retirement funds, setting aside money for health savings accounts, and using all deductions available to them, including standard or mortgage tax deductions. Corporations take advantage of deductions for employee stock options, accelerated depreciation, and a number of legal “loopholes.”
Offshore tax evasion is another story. Just as if you were stopped by a police car and sped off, hiding income or otherwise attempting to “willfully attempt in any manner to evade or defeat any tax imposed,” is the commission of an illegal act. Evasion is, by definition, “endeavoring to set aside truth or to escape the punishment of the law.”
What constitutes offshore tax evasion?
Having an offshore bank account is not against the law. It’s not uncommon for Americans who work abroad, as well as immigrants to the U.S., to have overseas accounts—most of which have relatively modest amounts of money and are not necessarily in so-called “tax havens.”
Offshore tax evasion is the intentional involvement in “abusive offshore transactions and financial arrangements for tax avoidance purposes.” While using offshore accounts for the purposes of money laundering is among the more egregious forms of offshore tax evasion (and likely a RICO violation), any “affirmative act” with the intent to evade paying taxes is a crime and punishable under 26 U.S. Code § 7201.
What are the penalties for offshore tax evasion crimes?
Recent cases of offshore tax evasion indictments include those of a Minnesota CPA charged in “a scheme to conceal from the IRS income that he earned abroad by falsely characterizing the funds he received as loans…(causing) his foreign companies to transfer millions of dollars held offshore to bank accounts in the United States that he controlled.”
In another case, a U.S. citizen residing in the Principality of Monaco pleaded guilty to tax evasion “for concealing from the IRS over $5,130,000 in income derived from a real estate transaction and securities investments in offshore bank accounts.”
While the consequences for failing to file a tax return or late payment of taxes owed usually include a financial penalty—often with interest—willful offshore tax evasion is a felony that may include significant fines and even incarceration.
Is tax avoidance ever illegal?
Most tax avoidance strategies are legal: using every allowable deduction to which you are entitled is well within IRS regulations. However, attempting to take deductions that are not legitimate or claiming non-deductible medical expenses (e.g., for cosmetic procedures) are not considered legal deductions. Whether you have an offshore account or have questions about tax avoidance strategies, it is in your best interest to seek legal advice as soon as possible
Are you concerned about IRS tax compliance issues?
The tax attorneys at Kundra & Associates provide knowledgeable guidance regarding IRS compliance and tax litigation matters. We are skilled negotiators who know how to find effective resolutions. We are also trial-tested litigators who will fight aggressively on your behalf in court. With more than 30 years of experience providing effective legal guidance for clients in Bethesda, Arlington, Rockville, Alexandria, and Washington D.C. —as well as globally—we stand ready to advocate for you. To discuss your needs and learn more about how we can help you, please contact us online or call us at 301-750-9731.
