Friday, Oct. 16
Posted 5 p.m. EDT
Thursday was the deadline for tax evaders to fess up to their offshore accounts. If they failed to do so, they can expect the IRS to come calling -- and not for a cup of tea and a friendly chat.
Back in August, the U.S. government reached an agreement with Swiss bank UBS AG to turn over the names of 4,450 American clients suspected of tax evasion -- a fraction of the 52,000 names requested.
But 7,500 individuals sheltering money in more than 70 countries voluntarily came forward before the IRS amnesty deadline, agreed to pay penalties, back taxes and interest that could amount to nearly half of the account, and in return avoided criminal prosecution and even stiffer penalties. Accounts ranged from $10,000 to more than $100 million.
In an effort to reinforce its zero-tolerance message and remind potential tax evaders of the consequences, individuals who didn't apply for amnesty will be prosecuted every few weeks.
Many offshore accounts go back generations, and truly were secret -- there are apparently beneficiaries who weren't aware they owned such an account. In some cases, accounts were established during World War II and the beneficiaries who eventually inherited them were never told of their existence.
There are certainly legitmate reasons to open offshore accounts. When a country's currency is unstable due to a crumbling economy or volatile political environment, wealthy individuals seek haven for their money in a more stable country. Some countries also have forced heirship laws, meaning you aren't allowed to leave your fortune to the beneficiaries of your choice.
But most account holders who have come forward seeking amnesty were likely playing hide and seek with Uncle Sam. The upshot of this game is that the IRS will apply increased scrutiny to overseas accounts, and is stepping up efforts by adding 800 staff members to its various offices, as well as opening new offices in China, Panama and Australia.
They have reason to crack down on the flow of overseas funds. Sen. Carl Levin, D-Mich., estimates that tax evaders cost the U.S. $100 billion a year.
If you've been putting money offshore to evade taxes, you've been put on notice, and now you'll have to pay.
Check out our 2009 Tax Guide.
Watch a video on whether you are at odds for a tax audit.
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