The Internal Revenue Service is offering to waive steep penalties for Americans living abroad who haven’t been paying their U.S. taxes. But there is a catch: You have to be able to show that you didn’t evade U.S. taxes on purpose.
American citizens living abroad are required to file U.S. tax returns, even if they keep all their money overseas. Similarly, U.S. persons living in the United States are required to tell the IRS about any accounts they have in foreign banks.
The penalties for not reporting these accounts are stiff. Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50% of the amount in the account at the time of the violation and may even result in the IRS filing criminal charges.
The IRS announced changes in its voluntary disclosure program on June 18, 2014 that would largely waive these penalties if taxpayers come forward and show that they didn’t hide the money on purpose.
Americans living abroad can have all penalties waived, if they file three years’ worth of tax returns and pay any back taxes.
Americans living in the U.S. can come clean by disclosing overseas accounts and paying a penalty equal to 5% of the account’s assets.
For people who are willfully evading U.S. taxes, the IRS updated its existing program that imposes higher penalties (but still less than the maximum that can be charged under the tax law) for people who come forward and under this program the IRS continues to allow them to escape criminal prosecution.
The key to which program is most suited for you is to determine whether your past actions or inactions can be considered to be non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence or mistake, or conduct that’s the result of a good-faith misunderstanding of the requirements of the law. The application of this standard will vary based on each person’s facts and circumstances so I suggest that one consult with a tax attorney experienced in making voluntary disclosures of foreign accounts.
The disclosure program is a particularly good deal for Americans living in countries with higher tax rates than the U.S. Typically, U.S. citizens living abroad must file a U.S. tax return and pay U.S. taxes on all income, regardless of where it is earned. However, they can deduct taxes paid to a foreign government from their U.S. tax bill.
Starting in 2009, the IRS has stepped up efforts to crack down on people who are willfully hiding assets overseas. Since then, the IRS has offered a series of programs to encourage people to come clean. In general, people who come forward can escape criminal prosecution in exchange for paying reduced penalties and back taxes. More than 45,000 people have come forward so far into a voluntary disclosure program, paying about $6.5 billion in taxes, interest and penalties and because they went through voluntary disclosure, they avoided criminal prosecution.
Starting next year, it will get even tougher for Americans to hide assets overseas. Under FATCA, more than 77,000 foreign banks from about 70 different countries have agreed to start sharing detailed information about U.S. account holders with the IRS.
What Should You Do?
If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or in 2012 OVDI, you should seriously consider participating in the IRS’ 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. 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.
Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.
Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.