If you aware that you have unreported foreign financial accounts that expose you to liability for Foreign Bank Account Report (FBAR) or Foreign Account Tax Compliance Act (FATCA) violations, you should carefully consider the risks of waiting to disclose your offshore accounts, including the following:
- The IRS does not have to continue to offer offshore disclosure programs, and can change the terms of these programs whenever they wish. The Offshore Voluntary Disclosure Program (OVDP) or Streamlined Filing Procedures can be ended at any time. If the terms of the programs are changed, they could be less favorable to taxpayers, resulting in higher fines or stricter eligibility requirements.
- You are not eligible for offshore disclosure programs if you are currently under IRS examination. This is true even if the examination is for issues completely unrelated to your undisclosed offshore accounts. Once the IRS begins to ask questions and request information from you, you may be put into a very difficult situation if you have foreign accounts that you haven’t disclosed, and you won’t be able to receive any type of amnesty from these programs.
- The IRS is increasingly receiving information on foreign financial accounts from foreign banks, which could implicate anyone holding an account with these institutions. If your foreign bank becomes the target of an investigation or works out a deal with the IRS or Department of Justice, you will face an increased offshore penalty of 50% of your aggregate account balances when using OVDP.
- While the OVDP provides for penalty payments, these amounts can be calculated with some certainty. If you wait to disclose your account, your potential liability is impossible to calculate. In most cases, you will only face civil penalties, which won’t exceed $12,459 per violation for non-willful violations, or the greater of $124,588 or 50 percent of the balance in the account at the time of the violation for willful violations. However, each unreported account can be assigned its own penalty for up to six different tax years, resulting in a very large potential liability for some taxpayers. Of course, this doesn’t even account for the possibility of criminal tax penalties including prison time.
An offshore disclosure attorney can help you determine your eligibility for the various offshore disclosure programs and calculate your anticipated costs for receiving amnesty. With this information, you can then decide whether it’s worth it to pay up now, or you can continue to wait and hope the IRS never catches your FBAR non-compliance.
For more information, read our free special report, Nine Questions You Should Be Asking About the IRS Streamlined Filing Compliance Procedure for Unreported Foreign Accounts.