by Brian Mahany
First is was unreported Swiss bank accounts. Then the Caymans. Then India, China and the list goes on. Now the IRS and South Korea’s National Tax Service are teaming up and comparing notes. For many Americans with ties to South Korea, that could mean trouble and expensive penalties.
South Korea and the U.S. have entered into a joint criminal investigation pact. Both nations have agreed to assist one another in the enforcement of foreign reporting requirements. For Americans, that means having an unreported bank or brokerage account in South Korea (or in any other foreign country).
Most taxpayers with unreported accounts simply have no idea that the law requires you to report the account and pay taxes on any interest or dividends. Although the requirement to file annual FBAR forms (Report of Foreign Bank and Financial Accounts) has been on the books for years, enforcement really didn’t begin until 2008.
Violations can earn you a penalty of $100,000 per year or 50% of the highest account balance for each year the account was unreported. With the IRS looking back 8 years, the penalties can easily exceed the entire account balance. Of course, if the IRS can prove your failure to file an FBAR was intentional, possible penalties include 5 years in federal prison.
If the announcement of the joint enforcement effort isn’t enough, the feds already convicted at least two Korean – Americans this year, Insoo Kim and Chung Choi. Both men were recently sentenced to prison for their tax crimes. For non naturalized citizens, those convictions could lead to deportation. (See our post from February 2012)
There is an amnesty program (the Offshore Voluntary Disclosure Program, sometimes referred to as OVDI or OVDP) that can help those with unreported accounts. The program has lower penalties and comes with a “get out of jail” pass too. There is a catch, however. Amnesty is not available if the IRS finds you first. That means if you receive an audit notice or the South Korean NTS supplies your name to the IRS, its too late for amnesty.
Amnesty is not always the best option. For those that can prove their actions were not intentional, a traditional voluntary disclosure or opt out may be the better move and in the right circumstances, result in no penalties.
If this sounds confusing, it is. The rules are constantly changing and the IRS is getting better at identifying U.S. taxpayers with unreported foreign accounts. If you fall into that category, contact us. We have helped many foreign born Americans, dual nationals and Americans with overseas accounts.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California (tax only). IRS legal services available nationwide and worldwide.