Taxpayers who hold assets in foreign financial accounts are required to report it to the Internal Revenue Service (IRS) if the value exceeds $10,000 in the reporting year. The IRS can impose significant penalties on taxpayers who do not report it in time and/or try to evade detection. Fortunately, you may be able to disclose these accounts after the filing deadline for a reduced penalty.
If you have an offshore financial account that you have not yet reported, discuss the situation with an Alexandria offshore disclosure lawyer. Our experienced tax lawyers could assess your liability for penalties, and offer a candid opinion about the ideal strategy in your specific situation.
Individual taxpayers, trusts, business organizations, and other legal entities often hold funds in offshore accounts. These funds might serve a personal or business purpose, but the IRS is concerned with taxpayers using them to hide assets and avoid paying taxes on them. When the Foreign Account Tax Compliance Act (FATCA) began forcing banks to disclose offshore accounts, the IRS gained access to information about U.S. holders of foreign financial accounts.
If taxpayers fail to report their foreign financial accounts, the IRS may discover this issue and impose large penalties on the taxpayer. Although the IRS imposes a substantial financial penalty on previously undisclosed accounts, the penalty when using a streamlined procedure is less than it would be if the IRS discovers the account through its own investigations. In addition, participation in the Voluntary Disclosure is for taxpayers who have willfully committed tax crimes.
The Voluntary Disclosure and streamlined programs impose different penalties, have different reporting requirements, and are open to different taxpayers. An Alexandria offshore asset disclosure attorney could review a taxpayer’s situation and recommend the procedure best suited to their exposure and goals moving forward.
The IRS limits participation in the Voluntary Disclosure program and may not be an option if any of the following apply:
In other words, a taxpayer usually cannot enter the disclosure program after the IRS has learned of the unreported income or accounts through its own methods.
In addition, the streamlined procedures require the taxpayer to certify that their nondisclosure was not willful. Given the stakes, an Alexandria attorney could assist a taxpayer with the certification. The IRS could examine the circumstances and, if it decides the evidence points to the taxpayer willfully failing to disclose foreign financial assets, they could refuse to allow the taxpayer to take advantage of the streamlined procedure.
This program is for taxpayers residing in the U.S. with foreign financial accounts and foreign income they have not disclosed or reported. Taxpayers using this option must file three years of amended returns, six years of FBARS, and pay all taxes, with interest due. In addition, the IRS will assess a five percent offshore penalty based on the year-end highest aggregate value of the accounts.
When a U.S. citizen or permanent resident lives abroad, they must file U.S. tax returns and report their foreign income. The procedures for expats to disclose their foreign holdings is the same as for the domestic program, except the IRS does not impose the five percent penalty.
The IRS also offers taxpayers who intentionally hid their assets offshore, or would not meet the non-willful requirement, a voluntary disclosure option. As with inadvertent failures to comply, the option is not available if illegal activity generated the income or if the IRS is already aware of the funds or accounts that would be the subject of the disclosure.
A taxpayer seeking to come into compliance could file Form 14457, Voluntary Disclosure Practice Preclearance Request and Application. If the IRS accepts the application, the taxpayer must file amended or delinquent returns and FBARs, and pay all taxes due with interest and penalties. In exchange for the taxpayer to avoid criminal prosecution, the taxpayer agrees to an audit for six years along with one civil fraud penalty of 75% in the year of the highest unreported tax and one willful FBAR penalty of the greater of $100,000 or 50% of the maximum account balance.
A taxpayer should have legal representation before engaging in this disclosure option. An offshore disclosure lawyer could handle communication with the IRS and carefully assess a taxpayer’s financial, civil, and criminal exposure.
If you have financial accounts in other countries that you did not report to the IRS, the government offers several options for voluntary disclosure. Making a voluntary disclosure and paying the taxes, interest, and penalties due brings you into compliance and reduces the odds of an investigation.
An Alexandria offshore disclosure lawyer could review your situation and recommend a disclosure strategy. Schedule a consultation with a member of our team today.
Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC, Rockville, MD, Bethesda, MD, Vienna, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.
Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.