by Brian Mahany
It’s still a couple of months until the IRS’ last chance tax amnesty program for holders of foreign bank accounts ends. The program, called the Offshore Voluntary Disclosure Initiative, ends August 31st. Many experts wonder if taxpayers will qualify if they wait much longer, however.
Under the new rules, all application materials and payments must be complete by August 31st. That means amended returns, Reports of Foreign Bank and Financial Accounts (FBAR), clearance letters and copies of almost a decade worth of financial statements. It’s the latter requirement that worries tax lawyers.
Amending returns and filing the FBARs can be done in a day IF the bank statements are available. Because the current program has an 8 year look back, it may be hard to get foreign banks to quickly provide copies of old statements. The IRS isn’t saying what will happen to participants who make a good faith effort to comply but miss the deadline.
In return for their participation, taxpayers with undeclared foreign investment accounts will avoid jail and forfeiture of 50% of the highest historical balance of the foreign account. Penalties can be as low as 12.5 or 5% for certain taxpayers who were unaware of the requirements or are living abroad.
Our research shows that many dual nationals and foreign born Americans simply do not know of the filing requirement. For example, the Korean restaurant owner that emigrates to the US ten years ago but continues to send money “home” to family probably does not know that he has reporting requirements. Owning the foreign account is legal but not telling Uncle Sam that you have it is a crime.
If you or anyone you know has unreported foreign or offshore accounts, now is the time to come clean. Those that were playing “hide and seek” with the IRS will probably have to pay 25% of the account value. Those that can demonstrate minimal contact with the account (an inherited account for example) or some excuse for not knowing of the reporting requirements may pay far less.
Everyone who participates is virtually assured a free “get out of jail” pass unless the offshore money is tied to some type of criminal activity. It’s a good deal but the clock is ticking.
Mahany & Ertl, LLC – Fraud Recovery & Tax Attorneys. Services nationwide, offices in Milwaukee, Detroit & Portland ME