Disclosing Foreign Accounts Through the Offshore Voluntary Disclosure Initiative

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IRS has established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls the Offshore Voluntary Disclosure Initiative (OVDI).

On January 9, 2012 the IRS announced the terms of the 2012 OVDI which requires that taxpayers: (1) File 8 years of back tax returns reflecting unreported foreign source income; (2) Calculate interest each year on unpaid tax; (3) Apply a 20% accuracy-related penalty under Code Sec. 6662 or a 25% delinquency penalty under Code Sec. 6651; and (4) Apply up to a 27.5% penalty based upon the highest balance of the account in the past eight years.

In return for entering the offshore voluntary disclosure program, the IRS has agreed not to pursue charges of criminal tax evasion which would have resulted in jail time or a felony on your record; and other fraud and filing penalties including IRC Sec. 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report, (FBAR) (the greater of $100,000 or 50% of the foreign account balance).

Recent closure and liquidation of foreign accounts will not remove your exposure for non-disclosure as the IRS will be securing bank information for the last eight years. Additionally, as a result of the account closure and distribution of funds being reported in normal banking channels, this will elevate your chances of being selected for investigation by the IRS.

For those taxpayers who have submitted delinquent FBAR’s and amended tax returns without applying for amnesty (referred to as a “quiet disclosure”), the IRS has blocked the processing of these returns and flagged these taxpayers for further investigation. You should also expect that the IRS will use such conduct to show willfulness by the taxpayer to justify the maximum punishment.

Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls of non-disclosure or incomplete disclosure.

IRS Processing Information Reported by Foreign Banks of their U.S. Accountholders

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The Department of Justice started pressuring Swiss Banks including UBS and Credit Suisse to reveal bank account information on their account holders who are U.S. citizens or U.S. residents. Information from the Swiss Banks and other European Banks has now been flowing to IRS and is being used by IRS to uncover taxpayers who have not disclosed foreign income and foreign accounts. The IRS is now aggressively supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors and promoters from around the world, with a new emphasis in Asia, India, Israel and the Middle East pressuring banks like HSBC and others to reveal U.S. accountholder information.

The IRS has established a Special Unit to disseminate bank information received from foreign banks and compare it to the forms and information reported by U.S. taxpayers on their tax returns. In addition, this Unit is able to review previously filed FBAR’s to determine whether all income was reported on each income tax return. Starting in 2011, taxpayers who have foreign assets are also required to disclose those assets with the filing of their Federal Individual Income Tax Return. This reporting will serve as an additional tool for this Unit.

Following the mandate of the Foreign Account Tax Compliance Act (FATCA), U.S. tax authorities and foreign governments are on track to conclude dozens of agreements known as Intergovernmental Agreement (IGA) in coming months on the sharing of financial data about citizens. FATCA, made law in 2010 as part of a crackdown on tax dodging by wealthy Americans, requires foreign financial institutions to disclose to the IRS more about Americans’ Offshore accounts. Banks and other institutions are affected by the law, which Treasury is implementing through a series of bilateral IGA’s. Completed pacts are in place with Britain, Denmark, Ireland, Mexico and Switzerland. More than 50 other countries are working with Treasury to sign IGA’s by the end of 2013.

The penalties for non-disclosure are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls of non-disclosure or incomplete disclosure.

Reporting Foreign Bank Accounts to IRS

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The Bank Secrecy Act requires that a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’s enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The FBAR covers a calendar year and must be filed no later than June 30th of the following year (regardless of whether you file an extension for you Form 1040) and includes any interest a U.S. person has in:

Offshore bank accounts
Offshore mutual funds
Offshore hedge funds
Offshore variable universal life insurance policies
Offshore variable annuities a/k/a Swiss Annuities
Debit card and prepaid credit card offshore accounts

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls of non-disclosure or incomplete disclosure.

IRS Enforcement Action to Combat Offshore Tax Evasion

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In his closing remarks, IRS Commissioner Doug Shulman affirmed that the IRS has significantly increased its resources and focus on offshore tax evasion. Since 2009 IRS gave taxpayers a chance to come in voluntarily and avoid going to jail. With the IRS’ mining of information it has received over the last few years, the IRS has launched its next wave of investigations on banks, bankers, intermediaries and taxpayers. Not only is the IRS looking to collect additional revenue for past misdeeds but to also to fundamentally change the risk calculus of taxpayers who are thinking about hiding their money overseas and deter the next generation of taxpayers from using hidden bank accounts to cheat on their taxes.

The Bank Secrecy Act requires that a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’s enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

The U.S. since 2009 has prosecuted about 70 U.S. taxpayers and 30 bankers, lawyers and advisers in a crackdown on offshore tax evasion and officials are still swiftly moving forward with further investigations and prosecutions.

In advance of the expected large wave of enforcement to be commenced by IRS, the IRS had established programs for taxpayers to voluntarily come forward and disclose unreported foreign income and foreign accounts under what the IRS calls the Offshore Voluntary Disclosure Initiative (OVDI).

OVDI allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

U.S. Treasury Closer To Inking Foreign Tax Info-Sharing Deals

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U.S. tax authorities and foreign governments are on track to conclude dozens of agreements in coming months on the sharing of financial data about citizens, with deadlines nearing for implementation of a sweeping U.S. anti-tax evasion law – the Foreign Account Tax Compliance Act (FATCA). More than 50 other countries are working with the IRS to sign Intergovernmental Agreements which need to be in place by the end of 2013. If a foreign bank or financial institution falls to comply with FATCA, it could be frozen out of U.S. capital markets. Thus, foreign firms have a big incentive to comply with the law in reporting U.S. account holders.

The Bank Secrecy Act requires that a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. This form is used as part of the IRS’s enforcement initiative against abusive offshore transactions and attempts by U.S. persons to avoid taxes by hiding money offshore.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

The IRS has established the Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS.  Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.