Uncovering Offshore Assets: Using U.S. Tax Reporting Requirements as a Discovery Tool

• Author: Matthew D. Lee
• Pages: 36-39

36 FAMILY ADVOCATE www.shopaba.org

Uncovering

Offshore Assets

Using U.S. Tax Reporting

Requirements as a

Discovery Tool

By MATTHEW D. LEE

reporting all their income, from whatever source and from

whatever location, and pay tax on that income. As part of

their tax ling obligation, U.S. citizens are also required to

disclose to the IRS their oshore nancial assets, such as

bank accounts and mutual funds, as well as any interests in

foreign entities such as trusts, corporations, and partnerships.

Hefty nancial penalties can be imposed on individuals who

fail to make these disclosures.

e obligation to le U.S. tax returns and disclose assets

located outside of the United States also applies to foreign

nationals who are considered U.S. residents for tax purposes.

Foreign nationals will be deemed U.S. residents if they hold a

green card (even if they live outside of the United States) or if

they are physically present on U.S. soil for a requisite number

of days each year. In addition, foreign nationals who are

married to U.S. citizens may be subject to the same tax and

disclosure obligations as U.S. citizens.

Tax Returns

U.S. tax returns provide fertile ground for family law

practitioners in search of oshore assets and should be

carefully scrutinized in every matrimonial case. e Form

1040 individual tax return itself requires disclosure of helpful

information, and the tax laws also require individuals with

The U.S. tax laws require all citizens and residents

of the United States to disclose oshore nancial

assets, like bank accounts, on their tax returns and

pay tax on income generated by those assets. For

decades, however, many individuals were able to

skirt these laws by hiding assets in tax havens around the

globe, where their accounts were protected by stringent bank

secrecy laws and governments unwilling to cooperate with

the United States. In 2009, the Internal Revenue Service

launched an aggressive crackdown on these practices, by

designating oshore tax evasion a key enforcement priority

and by successfully lobbying Congress to pass new laws

strengthening the IRS’s powers to obtain information about

the oshore activities of U.S. taxpayers. e result of these

eorts is that the U.S. tax laws now require more disclosure

than ever of the oshore activities of U.S. taxpayers, and that

compliance by taxpayers is substantially better than in the

past. is new era of tax transparency aords signicant

benets to family law practitioners in search of oshore

assets, and U.S. tax returns can now provide a useful road-

map for uncovering assets outside of the United States.

e United States is one of the few countries in the world

to tax its citizens on their worldwide income. is means

that U.S. citizens must annually le a U.S. tax return

Published in Family Advocate, Volume 43, Number 2, Fall 2020. © 2020 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof

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