offshore disclosure

What Should I Do If I Have an Unreported Offshore Account at a “Bad Bank”?

December 14, 2017 | by Dennis N. Brager

If you have an account at one of the IRS “bad banks” and you used the Offshore Voluntary Disclosure Program (OVDP), you will face a 50 percent offshore penalty on the highest aggregate account balance during the disclosure period, instead of the regular 27.5 percent offshore penalty. On top of that, the 50 percent penalty applies to the balance of all of the taxpayer’s accounts being disclosed, not just the ones that are held at bad banks.

For example, a taxpayer with a single account at a bad bank worth $20,000, but with $1,000,000 in unreported foreign accounts at other banks, would face the 50 percent offshore penalty on the full account balance of $1,020,000. With penalties this high, you may wonder whether offshore disclosure is even worth the trouble. In fact, it may be even more important for taxpayers with accounts held at bad banks.

Not only can the IRS assess penalties equal to 50 percent of the aggregate account balance for willful FBAR violations, but criminal prosecution can also be pursued. The OVDP—although it can be costly—offers protection from criminal prosecution related to unreported offshore accounts.

Should I Wait to Disclose My Offshore Accounts?

November 6, 2017 | by Dennis N. Brager

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.

When the 50 Percent Penalty Applies During Offshore Voluntary Disclosure

October 3, 2017 | by Dennis N. Brager

The Offshore Voluntary Disclosure Program (OVDP) normally comes along with an “offshore penalty” equal to 27.5 percent of the highest aggregate account balance of the previously unreported foreign financial assets. However, the penalty is increased to 50 percent for taxpayers who have accounts at foreign financial institutions that are under investigation by the IRS or Department of Justice, or who are cooperating with the U.S. government regarding accounts held by U.S. persons. These foreign financial institutions have been referred to as “bad banks”, and the list of bad banks has continued to grow each year.

How the 50 Percent Penalty Works

Not only does a taxpayer face a 50 percent offshore penalty for any assets held at a bad bank, the taxpayer must pay the 50 percent penalty on all of their unreported foreign assets. For example, a taxpayer with a $10,000 account at a bad bank and $500,000 at a foreign bank that is not under investigation will be subject to the 50 percent penalty on the total of both accounts, despite the fact that the majority of their funds are held at a bank that is not under investigation.