by Brian Mahany
We frequently encounter absolute shock when we tell prospective clients about the potential penalties for an unreported foreign account. Miss filing an FBAR (that’s Treasury jargon for the Report of Foreign Bank and Financial Account also known as a TD F 90-22.1 form) for just 1 year and the penalty can be $100,000 or 50% of the highest balance of the over reported account. Non willful violations are less but still can hurt.
There are amnesty programs including special programs for people who inherited an offshore account, accounts with small balances and a streamlined program for ex pats living overseas. The penalties for the options vary dramatically.
If you can prove that your failure to report a foreign account was accidental, the penalty could be $10,000 or even zero. Elect to go the standard amnesty route and the penalty is 27.5% but just imposed on 1 year. We know that even the amnesty reduced penalties are difficult to swallow. Some folks elect to take their chances and hope they won’t get caught simply because they can’t afford the penalties. That is a mistake!
Like any tax debt, the IRS wants to get paid promptly. The best option is always to pay the amnesty penalties in full. Not everyone can, however.
There is a popular misconception that penalties must be paid in full in order to take advantage of the amnesty plan. That belief is wrong. Payment plans are available and sometimes even an offer in compromise may be available.
For those taxpayers that still hold their offshore accounts, negotiating a payment plan may be difficult. After all, the IRS knows you have access to the money. Sometimes, however, the account may belong to multiple family members or the account may have already been closed at the time of the amnesty application. (Many foreign banks have been closing accounts belonging to Americans. Simply repatriating the money doesn’t spell an end to the obligation to file FBARs.)
If the only thing holding you back from the IRS’ amnesty plan – called the Offshore Voluntary Disclosure Program or OVDI / OVDP for short – is lack of funds, give us a call. We specialize in foreign reporting requirements including OVDI, FBAR filings, foreign partnership and gift returns and foreign real estate transaction reporting. Don’t miss the benefits of the IRS amnesty programs because of a cash flow crunch.
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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