by Brian Mahany
In the last 4 years, the IRS has run 3 separate tax amnesty programs aimed at getting people with unreported foreign bank accounts to come forward. The current amnesty program, called the Offshore Voluntary Disclosure Program or “OVDI” – doesn’t even have an expiration date. Many of the potential clients we speak to have adopted a “wait and see” attitude. In other words, only if they get caught by the IRS will they file. Unfortunately, then it’s too late.
Foreign bank and brokerage accounts need to reported annually to the IRS on a form called a Report of Foreign Bank and Financial Accounts, called “FBAR” for short. Failure to file FBARs carries steep penalties and can include loss of the account and prison in certain instances. Maintaining an account in another country is completely legal as long as the disclosure requirements are followed. This year, those disclosure requirements include both FBAR and FATCA filings. (FATCA stands for the Foreign Account Tax Compliance Act and has different filing thresholds than FBARs – depending on individual circumstances, you may have to file one or the other and often both.)
FATCA forms (IRS form 8938) are filed with your income tax returns. FBARs (form TDF 90-22.1) are filed separately and are due on June 30th.
Beginning in 2013, foreign banks will disclose the identities of U.S. taxpayers holding accounts in their bank. If you haven’t already disclosed your account, time is running out. This year’s deadline for FBAR filings is days away. Although one may be tempted to wait until being caught, the IRS says all bets are off if they find you first. That means no amnesty.
Obviously, people with unreported foreign accounts should follow the law. We are disappointed in Congress for making the reporting requirements so confusing and onerous. The penalties for ignoring the law are simply too severe, however.
If you have not reported for several years, consult with a competent tax attorney or CPA. Simply filing an FBAR in the next two weeks and hoping the IRS doesn’t ask questions is not a wise strategy. Remember, if the IRS asks questions (an audit) or finds you first, it is too late to seek amnesty.
The current OVDI amnesty program requires most participants to pay 27.5% of the maximum balance over the last 8 years to the IRS as a penalty. Although that seems very high, the current law says the IRS can penalize account holders the greater of $100,000 per year or 50% of the account balance for each year the account wasn’t reported. Taxpayers that can demonstrate their failure to report was not intentional may be better off outside of amnesty.
As anyone reading this article can tell, the rules for foreign reporting can be confusing. Make a mistake and you could wind up paying huge penalties. The deadline this year for filing FBARs is June 30th. While the IRS will always allow someone to report late, the odds of getting caught increase every day.
If you have questions about FATCA, FBARs, the Offshore Voluntary Disclosure Program, or foreign gifts and corporation tax issues, give us a call. The tax lawyers at Mahany & Ertl help people and businesses with a wide variety of offshore reporting requirements. All inquiries are protected by the attorney client privilege and kept in strict confidence. For more information, contact attorney Bethany Kroes at (414) 223-0464 or by email at .
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Detroit & Minneapolis. IRS tax services worldwide.