IRS Offshore Account Audits

Update 2017: We have now received notice that Steamlined Submissions are now being specifically targeted and audited. Read more about it here. And if you need assistance getting into a program, or are being audited, contact us at 888-727-8796 or email info@irsmedic.com. 


From what we gleaned from our clients and other professionals we talk to, those taxpayers who are currently under audit and possess unreported offshore accounts — well, so far it does not appear that they have been targeted for an audit because the IRS suspected that that owned unreported offshore accounts. They haven't been specifically IRS offshore account audits. But rather, the audits appear to incidental.


So with the intense focus on Offshore accounts since 2008, why is this so? Why are there so few tax audits of those who have unreported offshore accounts?  Most of the reasons are related to budgetary and logistic challenges. 


More of the seasoned auditors are being rigorously trained, right now, on how to handle offshore tax examinations. The reason? An undisclosed offshore account audit has three very difficult factors that a normal auditor typically does not need to deal with:

  • truly difficult accounting rules
  • lack of clear guidance on assessing FBAR penalties
  • questions on referring a case to the IRS Criminal Investigation Division (CID) for tax evasion.


I have also heard — and again, this is just rumor/speculation, nothing official — that offshore audit "super centers" are being formed composed of the best and brightest IRS auditors. These "super centers" are going to be located in major cities and will focus on the very big cases where a CID referral or massive FBAR penalty is very likely.  I believe that there will be a "super center" in New York City to focus on the tri-state area of New Jersey, New York and Connecticut (where the IRS suspects the vast majority of unreported account holders reside). I would also expect "super-centers" in Miami and Southern California. I also would not be surprised to see one located in Switzerland, Hong Kong and/or somewhere in India.



My best guess is that sometime in 2013, we will start seeing the first audits specifically targeting offshore account holders.  And I expect the auditors to take a very hardline, a line as hard as one taken in the Williams FBAR decision Once those start, I would expect an uptick into the IRS offshore voluntary disclosure program (OVDP), assuming it is still around by then.