COMMON TAX FRAUD THROUGH OFFSHORE SHELTERS

One of the most popular methods for avoiding federal income taxes is to open an offshore bank account in “tax-haven” countries and funnel money into it. This is illegal and the IRS has stepped up their enforcement for this particular tax avoidance fraud. The IRS is concentrating its efforts in this area and has done quite well in recovering a large amount in taxes, interest and penalties associated with illegal offshore accounts. The IRS says it will continue to aggressively pursue taxpayers and promoters in this area. Visit their website for more information on this subject, Examples of Abusive Tax Scheme Investigations – Fiscal Year 2009. Whistleblowers reporting the fraud may collect upto one third of what the government recovers.
Offshore Tax Evasion Schemes
Offshore tax evasion or taking your money to another country to avoid paying taxes can take many forms. Some offshore schemes can be as simple as taking unreported cash receipts and flying to a tax country that acts as a tax haven and depositing the cash into a bank account. Others are more elaborate involving various domestic and foreign trusts, partnerships, nominees, etc. The following list of offshore tax schemes comes from the IRS’s publication Abusive Offshore Tax Avoidance Schemes – Talking Points.

Foreign trusts
Foreign corporations
Foreign (offshore) partnerships, LLCs and LLPs
International Business Companies (IBCs)
Offshore private annuities
Private banking (U.S. and offshore)
Personal investment companies
Captive insurance companies
Offshore bank accounts and credit cards
Related-party loans
How do tax evaders access their offshore account funds?

Although the unreported funds sitting in the offshore bank account are earning interest or being used for investment purposes, most of the time the taxpayer needs access to the money for their use. There are many ways to get the funds back to the taxpayer. The following list of methods used to repatriate funds back to U.S taxpayers comes from the IRS publication Abusive Offshore Tax Avoidance Schemes – Talking Points.

Credit cards which simply draw on the U.S. taxpayer’s offshore account
Loans from mystery offshore lenders
Loans from domestic lenders in amounts beyond the taxpayer’s apparent borrowing power (may be secured by offsetting deposits of offshore funds)
Use of property titled to offshore entities at zero or below-market rental
Bogus transactions designed simply to transfer funds to or from offshore entities, such as sales of property to offshore entities in jurisdictions where it is unlikely the property will actually be used or sold
Gifts
Scholarships for taxpayer’s children
“Payable Through” accounts