Is New York Targeting Non-Compliant Offshore Accounts?
by Asher Rubinstein
The Wall Street Journal this past weekend ran an article about Cyrus Vance, Jr., the new Manhattan District Attorney. See “The World’s District Attorney, Part II“, Wall Street Journal, February 20, 2010.
The Journal reported that the Manhattan DA will be prosecuting cases related to undeclared offshore accounts. The following single sentence appeared on its own, and without any sources cited: “Federal prosecutors can’t handle all of the cases, so they have handed some of them to Mr. Vance’s office.”
That revelation, alone and without authority, is very curious. The Journal, of course, is normally quite thorough, but that bombshell of an announcement calls for more explanation and detail. Is this a conclusion reached by the Journal reporter? Was this information obtained from a source at the IRS?
It is doubtful that the IRS would publicize that it lacks the resources to go after every non-compliant offshore account holder. The IRS does not want to give the impression that someone might squeak by. For instance, the Annex to the UBS settlement agreement, the one which listed the numeric criteria for disclosure of the UBS accounts, was delayed in release because the IRS did not want an account holder to think that because he or she was below a certain dollar threshold, he or she was “safe”. The delay in the release of that criteria contributed to a fear of prosecution, and that fear resulted in thousands of voluntary disclosures. Had the criteria been announced earlier, taxpayers may have felt that their accounts were under the threshold, and they may not have come forward. Now, publicizing that the IRS lacks the ability to target all non-compliant account holders undercuts the IRS’ past goal of scaring taxpayers into compliance.
In addition, the comment that the IRS lacks the resources to prosecute all offshore account holders may also seem surprising in light of the latest guilty plea, i.e., Silva, the first non-UBS client to be prosecuted, whose account at HSBC was valued at $250,000. With limited resources, is it curious that the IRS would chose Silva’s account rather than one containing a higher balance?
Actually, no. The IRS wants taxpayers with non-compliant accounts to be on guard, whether the account contains $100,000 or $100 million. Again, the IRS doesn’t want a taxpayer to think that he or she might squeak by with a smaller account.
Given the cooperation between the IRS and State tax authorities, it’s no wonder that New York residents with non-compliant foreign accounts face prosecution on both a federal and state level.
In the context of the New Jersey Voluntary Compliance Initiative, the information-sharing between Federal and State was publicized and caused many NJ residents to come forward under both programs, the IRS Voluntary Disclosure Program as well as New Jersey’s amnesty program.
In light of the information sharing between the IRS and state tax authorities, it would be foolish to think that one’s offshore account could remain hidden from both levels of government.
The lesson is to bring a non-compliant foreign account into tax compliance with respect to all taxing authorities, state and federal.