The Bank Secrecy Act requires U.S. persons to file disclosure form TD F 90-22.1 by June 30 of every year for those having a financial interest in an account or accounts in a foreign country that exceed $10,000 at any time during the year. The $10,000 threshold applies to the aggregate of all foreign accounts, not per account. These are known as the Foreign Bank Account Reporting (FBAR) rules.
The Offshore Voluntary Disclosure Program (OVDP) is an initiative for owners of foreign bank accounts or other foreign financial assets to voluntarily disclose information to the IRS in a tax amnesty setting. In so doing, criminal charges are usually prevented and heavy financial penalties can possibly be avoided provided unpaid tax obligations are met.
The provisions of this recent amnesty program went into effect on July 1, 2014 for:
Taxpayers with foreign accounts that fall into any of these four categories should seriously look to take advantage of the new amnesty provisions.
For starters, it enables them to become compliant. Additionally, taxpayers can avoid civil penalties and eliminate the risk of criminal prosecution. Voluntary disclosure provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving offshore tax issues.
If the IRS does become involved, here are some of the penalties within the amnesty program and other penalties that can be assessed:
Amnesty cost: Time and trouble of electronically filing FinCen form 114 and exposure to be possibly selected for audit.
Cost outside of the amnesty program: The greater of $100,000 or 50 percent of the total balance of the foreign account per violation.
Cost outside of the amnesty program:
The IRS is actively engaged in identifying owners of financial accounts and assets in foreign countries.
The incentive to comply and voluntarily disclose is high compared to the alternative of non-compliance and automatically being regarded as acting with willful disregard for U.S. tax laws.
Foreign account and asset information is becoming increasingly available to the IRS through tax treaties with foreign governments, submissions by whistleblowers at foreign or domestic financial institutions and other sources utilizing “big data” capabilities.
If you think the current OVDP provisions may apply to you, please contact a professional in our office to discuss your situation. Often the remedy can be as simple as submitting forms which should have been filed.