Forensic, General & Medical
Expert Witnesses

Have You Committed Income Tax Evasion Involving a Foreign Account


     By Lance Wallach, CLU, CHFC Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness

PhoneCall Lance Wallach at (516) 938-5007


One of the most basic premises, but often the least understood by taxpayers, is that U.S. Citizens and Residents are taxed on their worldwide income.
This misunderstood concept and the fact that, until recently, the vast majority of U.S. tax advisors were unaware of the information reporting requirements surrounding foreign accounts, foreign investments and foreign business activity have created a massive tax trap for unwary taxpayers.

Three Actions Resulting In The High Probability For Criminal Charges:

1. Repeated failure to file Form TDF 90-22.1 where a citizen or resident has greater than $10,000 on deposit in a foreign bank or institution at any one time during a given tax year
2. Repeated failure to include the investment income generated by the account as income on the taxpayer’s income tax return.
3. Repeated failure to indicate the existence / location of the foreign account on schedule B of the taxpayer’s income tax return.

Each of these actions is considered possible tax fraud; however, a distinction must be made between a taxpayer’s negligence versus a taxpayer’s willful behavior. The government’s hardest element in proving a tax crime is to prove, beyond a reasonable doubt, a taxpayer’s intentional violation of a known legal duty. Many of the taxpayers that I have taken through a voluntary disclosure wanted to avoid having the government second guess their actions as being willful rather than negligent where the unreported income was significant and a consistent pattern of non-reporting existed between the tax years 2003 through 2010. Many taxpayers’ chose to disclose and pay penalties even where they were convinced their actions were merely negligent rather than leaving open the possibility of a criminal conviction.

What Else Could Be Considered fraud:

- Transferring your foreign account from a foreign bank under investigation to a foreign bank not under investigation.
- Failing to complete form 8939 during the 2011 tax filing season
- Failing to report income earned through foreign business activity
- Failing to report foreign income from assets held overseas – i.e. rental income
- Failing to file from 3520 for foreign inheritances or distributions from foreign trusts
- Failing to file from 5471

The government views noncompliance surrounding foreign income as its number one compliance problem and has successfully lobbied congress to draft some of the most draconian penalties ever written in the income tax arena to date. Because of its lobbying efforts the IRS now has the power to penalize taxpayers with simultaneous criminal and civil sanctions for noncompliance surrounding foreign accounts.

From a civil perspective, the non-reporting of the TDF 90-22.1, carries a $10,000 a year penalty for each failure to file where a taxpayer’s failure to file is deemed merely negligent. If however, the taxpayer’s non-reporting is deemed willful, the penalty is ½ of the account balance for each year the form was not filed. Where willful failure to file is asserted the penalty for not filing the form can easily result in a multiple of the account balance being assessed. For example, a foreign account with a $1,000,000 balance could be assessed a $3,000,000 penalty. From a criminal perspective a taxpayer can be prosecuted for income tax evasion which carries the potential for a 5 year jail sentence, $250,000 fine, and restitution for the cost of the prosecution.

ABOUT THE AUTHOR: Lance Wallach
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s All Things Considered, and others.

Copyright Lance Wallach, CLU, CHFC

More information about Lance Wallach, CLU, CHFC


While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.
For specific technical or legal advice on the information provided and related topics, please contact the author.

Find an Expert Witness