Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets As Modified By The IRS On June 18, 2014
Stopping offshore tax cheating and bringing individuals, especially high net-worth individuals, back into the tax system has been a top priority of the IRS for several years and the IRS established offshore voluntary disclosure programs to encourage taxpayers with undisclosed offshore assets to become current with their tax liabilities. The programs have been part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions and implementation of third-party reporting via the Foreign Account Tax Compliance Act (“FATCA”).
2012 Offshore Voluntary Disclosure Initiative (OVDI)
After the two prior voluntary programs, continued strong interest by taxpayers and tax professionals led to a third program. In January 2012, the IRS revised the terms of the previous 2011 OVDI program and made it permanent until further notice.
Under the 2012 Offshore Voluntary Disclosure Program, participants pay a penalty of up to 27.5% of the highest aggregate balance or value of offshore assets during the prior eight years and do not have to worry of even higher penalties and criminal prosecution.
Changes to Offshore Programs Announced By IRS on June 18, 2014
On June 18, 2014, the IRS announced major changes in the 2012 OVDI program providing new options to help taxpayers residing in the United States and overseas.
First, the IRS expanded the streamlined procedures to cover a much broader group of U.S. taxpayers who have failed to disclose their foreign accounts but who aren’t willfully evading their tax obligations..
Second, the IRS has reshaped the terms for taxpayers to participate in the Offshore Voluntary Disclosure Program (“OVDP”). OVDP is designed to cover those taxpayers whose failure to comply with reporting requirements is considered willful in nature, and who therefore don’t qualify for the streamlined procedures. The changes will help focus this program on people seeking certainty and relief from criminal prosecution
Taxpayers with undisclosed foreign account now have up to four options listed below:
Offshore Voluntary Disclosure Program;
Streamlined Filing Compliance Procedures;
Delinquent FBAR submission procedures; and
Delinquent international information return submission procedures.
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.
Additionally, starting with the 2011 Tax Return Filing Season: U.S. taxpayers who have an interest in foreign assets with an aggregate value exceeding $50,000 must include new Form 8938 (Statement of Specified Foreign Financial Assets) with their Federal income tax return. This reporting will serve as an additional tool for the IRS to determine prior noncompliance of taxpayers who have undisclosed foreign accounts or unreported foreign income. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.
For taxpayers currently in the 2012 Offshore Voluntary Disclosure Initiative (“OVDI”) there is a deadline of June 30, 2014 to convert your case to be under the new procedures which could substantially reduce your penalties to 5% and in some cases even eliminate them.
What Should You Do?
We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5%.
Don’t let another deadline slip by. 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’s 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.