Advice For Targets Of IRS Offshore Credit Card Hunt

by Mike Godfrey, Tax-News.com, New York

18 June 2002

When the US Internal Revenue Service announced in March that its pursuit of credit card records based in Bahamas, the Cayman Islands, and Antigua and Barbuda had turned up over 230,000 US citizens with offshore credit cards, many of whom had failed to declare the money lodged abroad, offshore bank account holders felt a frisson of fear.

'The guarantee of secrecy associated with offshore banking is evaporating,'' said IRS Commissioner Charles Rossotti, as he described how the IRS was extending its enquiries to Mastercard, Visa and Amex accounts in Switzerland, Latvia, Luxembourg, Hong Kong, Bermuda, Panama, Singapore, and several more Caribbean jurisdictions.

According to Moneynews.com, however, the chances of discovery are low. According to tax experts, American Express cardholders on the IRS hit list, for example, are targeted only if they have had at least one authorization in the US for a purchase of more than $2,500 in one of a handful of categories, such as yachts and jewelry, and at least five authorizations in the US during 1998 and 1999.

Individuals who do not meet these requirements are not at risk for having data released, at least for now, says the report, quoting five strategies taxpayers can implement if they are facing an IRS criminal investigation for non-reporting of offshore accounts:

1. Do nothing.

2. File the delinquent reporting forms.

3. In addition to filing the delinquent reporting forms, file an amended return, 1040X for the last three years, and pay all the back tax, interest and penalties. Amended returns cannot be filed beyond three years from the due date or filing date, whichever is later. A sub-option is to pay all tax, interest, and penalties for all years.

4. Anonymous payment of back tax, interest and penalty, paid through your attorney, under cover of the attorney-client privilege.

5. Proceed through counsel with an informal request to the Criminal Investigation Division (CID), which need not involve disclosure of your identity.

The general statute of limitations for a civil tax audit is three years from the due date of the return or the filing of the return, whichever is later, unless gross income is unreported by 25 percent or more, in which case the IRS has six years, says the report, adding that citizens who report a small or zero tax loss stand a very small chance of being selected for a tax audit.

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