by Brian Mahany
We read about 2 dozens articles each week on offshore reporting, FBARs and the looming FATCA implementation. The rules for these programs are slow in coming and plenty of confusion abounds. Public awareness remains quite low. In fact, most of the clients that come to us never knew they needed to report offshore income or accounts.
When the average American thinks of “offshore accounts”, they immediately picture a wealthy, white businessman hiding monies from the IRS in a secret, numbered Swiss account. That does happen but the majority of our clients are foreign born Americans, dual nationals or Americans who have retired abroad. We represent the Chinese business owner sending money home, the South African with an account in Israel and the Indian doctor born in India but working here.
Today’s post comes from a spirited discussion on a LinkedIn asset protection group earlier this week. The comments posted there are typical to what we hear everyday.
Said one, “I have lived in Canada for 31 years. I have gone back through all the paperwork I have from the State Department when renewing a passport, etc. and there is not one word about FBAR nor taxes. At least not before the 1997 passport, which has a tiny line about the requirement to report one’s worldwide income. I don’t know anyone who reads anything beyond the first page of their passport, to make sure the spelling, dates, etc are correct. The fact that so many abroad are law-abiding, and tax-compliant in their adopted countries should count for at least some consideration that ignorance of the law does not equate with an intended attempt to disobey the law.
“Add that to the fact that no other nation on earth (except Eritrea) taxes based upon citizenship.
I meet people every day, in casual conversation, who turn out to be US persons, even if not born citizens. And they also, have no awareness of what they are required to do. I fail to see how the overly penalizing approach is necessary, helpful or likely to result in the desired numbers to comply. After the reports of OVDI horror stories, people are understandably terrified they will lose everything they have when by any reasonable standard, should be judged as not having done anything wrong.”
Another said, “Every night this Winter, I have been using 2011 IRS instructions to ignite a wood fire in my Wood stove. I should be able to make it to spring with the stack I have.
Yet, after Reading and re-Reading the instructions each year, I hadn’t seen instructions for FBAR. In fact, during the period 2004-2008, the instructions for the FBAR were removed from the publication 54 IRS book for foreign tax filers. [Ed. Note: Publication 54 was the IRS instruction booklet sent to foreign filers. It is the logical place for information on FBARs.]
“Now, during the filing process of the 2008 tax year, the administration could have looked at the figures—that only 500,000 FBARs had been filed to date, and there are 7 million US persons overseas and 10’s of millions of immigrants. They had the choice to actually inform people of what they wanted, or of making all but 500,000 of them into overnight criminals. Well, obviously making criminals overnight was the choice.”
We are often called alarmist when we write stories about criminal prosecutions or the extremely high penalties imposed by the IRS for missing FBARs. Too many of our clients simply don’t believe us until its too late.
Fortunately, there are options if you get to the IRS before they contact you. There are amnesty plans with penalties ranging from 5% to 27.5% as well as the ability to opt out and pursue traditional voluntary disclosures. With so many options and the stakes so high, a qualified offshore tax lawyer or CPA is a must.
Doing nothing is probably the worst option. Beginning next year, foreign financial institutions will be reviewing accounts and reporting anyone with ties to the U.S. The penalties for not reporting are as much as $100,000 per year or 50% of the highest account balance for each year the account is unreported. With the IRS looking back 8 years, the potential penalties could easily wipe out any savings you once had.
Whether or not the IRS is to blame or not, the lack of awareness is both stunning in its breadth and quite dangerous. Do some reading, look at the IRS website, see what is happening to others and then draw your own conclusions. We are happy to answer questions and help you decide what the best options are for you.
The tax lawyers at Mahany & Ertl can help you with any offshore reporting issues. From the OVDI program (amnesty) to FBARs and even foreign partnership, real estate and gift reporting… we can help. Most cases can be handled for a reasonable flat fee and we stand behind our work including defending you in U.S. Tax Court if necessary.
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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