by Brian Mahany
Up to 1 million U.S. taxpayers have failed to properly report offshore accounts or foreign source income. Although some individuals deliberately hid money in Swiss accounts to avoid Uncle Sam, the majority of people who failed to properly file simply didn’t understand the complex offshore reporting requirements. Now a government report says the IRS made some mistakes too.
Earlier this year the IRS offered taxpayers with unreported foreign income or assets an opportunity to reduce monetary penalties and avoid jail. That program, called the offshore voluntary disclosure initiative or “OVDI” helped thousands come into compliance. A study conducted by the Treasury Department’s Inspector General, however, reveals the government made a fair amount of mistakes too.
Most taxpayers that have failed to comply with the reporting requirements are dual nationals, foreign born Americans and recent immigrants to the U.S. that continue to maintain bank and brokerage accounts in their home country. Generally, these folks are required to annually file a Report of Foreign Bank and Financial Accounts or “FBAR.” Any income from those accounts must be disclosed on one’s income tax return, even if tax was paid on that income in a different country.
The regulations can be confusing, even for tax lawyers and accountants. So how did the IRS do with administering the amnesty program? Generally “good”, according to the Treasury report.
Federal auditors sampled 60 amnesty returns and found problems in many of them. On 18 of those returns (30%) there was no evidence that taxpayers reconciled unreported income with their newly filed or amended returns. In 31 cases, settlement agreements were not printed or watermarked paper and / or initialed on each page by revenue agents to insure no alterations were made.
The mistakes uncovered work mostly to the benefit of taxpayers. Such a high number of problems, however, suggests that the IRS is still struggling with understanding its own amnesty program. That fact doesn’t inspire confidence.
With so many taxpayers still sitting on the fence, the government must be fair and completely consistent in its treatment of taxpayers with offshore accounts. The latest report from the Treasury Department shows that the IRS still has a long way to go, however.
If you have unreported foreign or offshore accounts, give us a call. From missing FBARs to voluntary disclosure agreements or “opt outs”, our tax lawyers can help. All inquiries are completely confidential.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and San Francisco, California (tax only). Services available nationwide.