The IRS is Emphasizing Offshore Account and Digital Asset Reporting Compliance in 2022

Each year, the Internal Revenue Service (IRS) publishes a list of its “Dirty Dozen” tax scams. While the list primarily highlights scams that target taxpayers, it also includes tax scams that top the IRS’ list of enforcement priorities. In 2022, the IRS published its “Dirty Dozen” list in a series of articles, and the last article in the series makes clear that the IRS is prioritizing offshore account and digital asset reporting compliance in 2022. Learn more from New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

Failing to Disclose Offshore Accounts or Digital Assets Can Lead to IRS Enforcement

“The IRS remains focused on stopping tax avoidance by those who hide assets in offshore accounts and in accounts holding cryptocurrency or other digital assets.” From this statement alone, it is clear that the IRS is paying close attention to taxpayers whose annual filings appear to omit relevant information. The Bank Secrecy Act (BSA) allows the IRS to obtain information about U.S. taxpayers’ offshore accounts from foreign banks, and the IRS has become increasingly aggressive in its efforts to obtain information about taxpayers’ digital asset holdings from exchanges and other intermediaries.

Recently, we have seen several cases of the IRS targeting taxpayers for failing to disclose offshore holdings and cryptocurrencies. The IRS routinely pursues cases against U.S. taxpayers for violations of the BSA and Foreign Account Tax Compliance Act (FATCA), and in 2021 IRS Criminal Investigation (IRS CI) seized billions of dollars in cryptocurrency. In targeting taxpayers for tax law violations involving offshore accounts and digital assets, the IRS looks for red flags such as:

• Accessing funds in offshore accounts through debit cards, credit cards and wire transfers
• Setting up foreign trusts and private annuities
• Setting up employee-leasing arrangements
• Moving cryptocurrencies and other digital and offshore assets between multiple banks, brokerage accounts and nominee entities
• Inconsistencies between taxpayers’ filings and third-party (i.e. foreign bank and cryptocurrency exchange) disclosures

Of course, none of these are inherently indicative of tax fraud, and they can all have legitimate purposes or explanations. But, once the IRS initiates an audit or investigation, avoiding civil (or criminal) penalties can be an uphill battle. 

With this in mind, taxpayers that own offshore accounts or digital assets need to prioritize compliance; and, if they have failed to comply in the past, they should work with a New Jersey tax attorney to come into compliance before the IRS initiates an inquiry. There are options available for addressing past reporting deficiencies, but taxpayers must choose between these options carefully to ensure that they can secure the maximum protection available. 

Request a Confidential Consultation with New Jersey Tax Attorney Kevin E. Thorn

Do you have concerns related to an offshore account or digital asset disclosure? If so, we encourage you to contact us promptly for more information. To request a confidential consultation with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-842-7696, email ket@thornlawgroup.com or tell us how we can reach you online today.