by Brian Mahany
As I have stated in prior blog posts, the government is finally getting the attention of U.S. taxpayers with foreign bank accounts. Although maintaining an offshore account is completely legal, not telling Uncle Sam about the account is a felony. Perhaps as many as 1 million or more Americans have undeclared foreign accounts. Many of those folks are dual nationals or foreign-born Americans – and many are from India.
In response to the problem, the IRS has run a series of “last chance” tax amnesty programs. The current program called the Offshore Voluntary Disclosure Initiative or “OVDI” ends in a couple weeks.
U.S. law says that the government can seize up to 50% of the value of an unreported offshore account. With penalties like that, amnesty is a popular option. Unfortunately, the amnesty penalties are still quite steep.
Because so many foreign born taxpayers simply believe they are sending money home or inherit money from a family member in their home country, hundreds of thousands of people are breaking the law and probably don’t even know they are doing so.
The Global Organization of People of Indian Origin, the National Federation of Indian American Associations, the American Association of Physicians of Indian Origin, and the Asian American Hotel Origins Association Will the letters work? Probably not directly, but they may influence Congress to grant some relief.
The onerous penalties have not been popular with many other ethnic groups, although only the Indians have seemed to have organized and petitioned the President and Treasury Secretary. Complicating the issue is how to treat the several thousand people who have already come forward during amnesty. Certainly treating the latecomers better than the folks who came forward does not seem fair.
Curious as to the reactions of the Indian community (most of our tax amnesty clients are Indian Americans), I looked at some of the letters and comments sent to the Times of India. Here are some of the comments:
“FBAR has become big FUBAR for Indians in US. Most of us have accounts in India, paid taxes there (or accounts were tax free or we were below income limit) and were not aware we have to disclose it in the U.S and take the credit for taxes paid in India. We are not tax evaders or money launderers. Yet we have to pay life-shattering penalties for such an ignorant mistake. I hope Govt of India does something otherwise influx of dollars to India from the U.S. will slow down because of these rules.”
“If the IRS is willing to forgo the 25% high balance penalty for this second round amnesty program, they’d better be willing to forgo the 20% high balance penalty for those who came forward the first time around as well.”
There are still a few days left to take advantage of the current amnesty program. Even if your foreign accounts were not properly reported (foreign accounts must be reported on an FBAR or Report of Foreign Bank and Financial Account), penalties may be waived if any income such as capital gains or interest was reported.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at . The tax lawyers at Mahany & Ertl can assist in a wide range of foreign reporting and offshore tax issues. There is no cost for the initial phone consultation.
Mahany & Ertl, LLC – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & San Francisco, California. Services nationwide.