The IRS Offshore Voluntary Disclosure Initiative (OVDI) allowing non-filers of Foreign Bank Account Reports (FBARs) to fix their tax problems without fear of criminal tax prosecutions has been vastly improved for ex-patriate Americans. Americans who reside abroad can enter the OVDI program, and have their FBAR penalty limited to 5% of their undisclosed offshore financial accounts. Up until now the IRS was insisting on an FBAR penalty of 25% of the highest offshore financial account balance, plus 25% of any income generating offshore assets. Thus an American living in say, Australia, who had “offshore” bank accounts in Australia of $1,000,000, plus a piece of rental real estate worth $2,000,000 could have been stuck with a penalty of $750,000 if he failed to file an FBAR.
Under the new OVDI FAQ 52.2 if you reside outside the U.S., make a good faith showing that you have timely complied with all tax reporting and payment requirements in the country of residency; and have $10,000 or less of U.S. source income each year you would qualify. If you already participated in the 2009 offshore voluntary disclosure program (OVDP), and paid a 20% penalty you can reopen the case, and obtain the lower 5% penalty. In addition, non-financial offshore assets are not included in the penalty base. We are recommending the OVDI to most ex-pats as a a good way of avoiding a potential FBAR penalty which could wipe out all of their financial assets.
If you would like to know more about the OVDI, or any other tax litigation attorneys at Brager Tax Law Group, A P.C. You can reach us at 800-380-Tax Litigator.