The United States is one of the only nations that taxes the worldwide income of citizens and legal residents. This broad approach to taxation requires a complex system of financial reporting when it comes to foreign financial assets. It is not uncommon for taxpayers to misunderstand these offshore disclosure requirements.
If you have financial assets overseas, these reporting requirements could apply to you. Before you attempt to come into compliance by filing or amending your tax returns, it could be in your best interest to speak with an experienced tax attorney first. A Vienna offshore disclosure lawyer could review your case and guide you on what your next steps should be.
One of the primary obligations of a taxpayer with foreign assets is mandatory reporting. There are specific forms that a taxpayer must use for this process. A Vienna offshore disclosure attorney could help ensure that a taxpayer is compliant with the reporting requirements and assist them in making these filings.
Under certain conditions, federal law requires taxpayers to submit Form 8938 to the IRS with their tax return. This requirement applies to both U.S. citizens and resident aliens who meet the green card test or the substantial presence test.
There is also a monetary limit that applies to foreign financial accounts held by these individuals. Filing this form is necessary for unmarried taxpayers with an account value of more than $50,000 at the end of the year, or $75,000 at any point during the year. These reporting thresholds are higher for married taxpayers who file joint income tax returns and even larger for taxpayers living outside of the United States.
There are reporting requirements that go beyond what is required by the IRS. Taxpayers must also submit FinCEN Form 114 to the Financial Crimes Enforcement Network of the Department of Treasury when the aggregate value of their financial accounts exceed $10,000 at any time. This filing is known as the Report of Foreign Bank and Financial Accounts, or FBAR.
Taxpayers with unfiled Forms 8938 and FBARs may avoid penalties with a voluntary disclosure. A voluntary disclosure involves informing the IRS of a mistake in a previous tax filing or missed filing requirement, and correcting it. The IRS generally takes voluntary disclosures into consideration, and this is particularly true when it comes to offshore financial asset compliance.
Voluntarily disclosing a reporting error will not guarantee that a taxpayer will avoid consequences such as a civil penalty. However, it could be one helpful option that pushes the IRS Criminal Investigation Division to choose not to pursue charges.
There are a few different programs that the IRS has set up to allow for disclosure, notably the streamlined domestic and the streamlined foreign disclosure programs. Taxpayers who live in the United States will use the domestic program and those who live abroad will use the foreign program.
One of the important questions that will come up during an investigation of a unreported foreign account or form is whether the conduct in question was willful or non-willful on the part of the taxpayer. While this failure is problematic under any circumstances, showing the IRS that it was non-willful could greatly reduce the consequences.
Disclosing to the IRS could reduce the risk of criminal investigation. A Vienna attorney could help make the case that an offshore reporting error or missing form was non-willful. This could be done by establishing that the noncompliance was made in good faith or was purely accidental.
There are many viable reasons for holding financial assets overseas. However, these benefits also come with the additional responsibility of reporting it to the IRS and paying tax on the related income. Given the complexity of this process, there is potential for non-willful mistakes.
If you are concerned about your prior offshore reporting or simply want to ensure you have fully complied with the law, a Vienna offshore disclosure lawyer is here to help. Call right away to get started.