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Avoiding Criminal Tax Prosecution of the Client with Foreign Accounts
Your client Jane Doe, the distraught business executive who hopes you can assist her in avoiding a criminal tax prosecution arising from her offshore bank accounts, calls you to inquire about the status of her case. While vacationing in the Caribbean several years ago, she opened accounts for herself and her company at a bank located on Grand Cayman Island. The bank issued her credit and debit cards linked to the offshore accounts, thereby enabling her convenient access to her offshore funds from the United States. In recent years, Jane's personal income tax returns, as well as those of her company, have failed to disclose the offshore accounts or to report the interest earned on them. Nor did she or her company file the required forms reporting those foreign financial accounts. Although Jane had not received any contact from the Internal Revenue Service prior to her engaging your services, she had heard news reports that the IRS had been gathering information about thousands of U.S. taxpayers with credit and debit cards issued by banks in the Caribbean, and she had feared that it was just a matter of time before the IRS would come calling.
Fortunately for Jane and her company, at the time she retained you in late December 2002 the IRS had recently announced significant changes to its voluntary disclosure program. See Business Crimes Bulletin, January 2003. A month later, the IRS announced its Offshore Voluntary Compliance Initiative (OVCI), which incorporated its newly revised voluntary disclosure policy and offered taxpayers such as Jane a possible golden opportunity to avoid criminal prosecution as well as significant civil penalties in exchange for their filing amended tax returns and cooperating with the IRS in its enforcement program against promoters of offshore tax shelters. Jane followed your advice to request participation in the OVCI program before the announced deadline of April 15, 2003. Subsequently, the IRS notified her of its preliminary determination of her eligibility.
What are the risks that your client still faces? What are the benefits? Have you rendered the correct advice? To serve your client properly, you must understand the seriousness of the situation, analyze the possible responses to IRS inquiries, and decide upon the best strategy to pursue in light of IRS and Department of Justice enforcement priorities, practices, procedures, and policies.
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