Awards & Recognition
FBAR & Foreign Voluntary Disclosure for US Expats
The Philippines is a particularly attractive nation for many expats and retirees. One of the things most frequently stated by those who visit or live in the Philippines is that the people are some of the warmest, nicest individuals that they have ever met. While some cultural practices can be difficult for Westerners to adjust to, for many the country present an opportunity to have a unique adventure in a major Southeast Asian Country. One of the things that makes the Philippines appealing to retiring expatriates looking eastward is the nation’s low cost of living. While the low cost of living satisfies practical concerns, often the year-round warm climate and culture cause Americans to fall in love with the island and decide to start a new second life.
While there can be many benefits of living in a foreign nation for one’s retirement, tax compliance is not one of those areas. In fact, living in a foreign nation away from the culture of the United States can make it difficult for an expatriate to keep track of certain disclosure obligations for their foreign-held accounts. Failure to satisfy these obligations can lead to significant penalties, fines, and civil or criminal tax enforcement action.
American Expats & Taxpayers Are Required to File Foreign Account Disclosures under FBAR
The FBAR requirement has long been part of the Bank Secrecy Act’s provisions. However, for a number of years the only penalties that existed related to willful failures to disclose foreign accounts. However, fairly recent amendments to the law not only strengthen the potential penalties a willfully noncompliant taxpayer can face, but also created a new penalty for taxpayers who simply make a mistake and fail to make a comprehensive disclosure. That is, non-compliance with FBAR can be punished regardless of intent, however the taxpayer’s perceived intent is utilized for determining which set of penalties may apply.
Even an inadvertent failure to comply with FBAR can result in a fine of up to $10,000. This $10,000 fine can be imposed for each act of noncompliance meaning that if the account remained undisclosed for a number of years, multiple penalties can be imposed. However, penalties become significantly harsher for those individuals who face allegations of an intentional or voluntary disregard of their FBAR disclosure obligation. Individuals accused of a willful FBAR violation can face a penalty of the greater of half of the original account balance or $100,000. Like the penalty for non-willful compliance problems, this penalty can be imposed for each violation of the reporting obligation meaning that penalties often significantly outstrip the original account balance.
FATCA Disclosures Are Also Required for U.S. Taxpayers
FATCA (Foreign Account & Tax Compliance Act) is often characterized as “America’s Global Banking Law” because the law requires action not only by taxpayers, but also by foreign financial institutions in most nations. In more than 110 nations, banks and other financial institutions are obligated to provide information regarding U.S. linked accounts to the U.S. government. Since these banks can face up to a 30 percent withholding penalty, they will comply with the law.
Since the U.S. government will use the information received by foreign financial institutions to pursue taxpayers who fail to comply wit their disclosure obligations, taxpayers should not neglect their FATCA obligations. The threshold that triggers a filing obligation under FATCA is more fluid because it varies based on one’s tax filing status and whether they are living in the United States. As a general rule, tax payers living in the United States who are sole filers face the lowest balance threshold before they must disclose foreign accounts. By contrast, a married taxpayer who files jointly with his or her spouse and lives outside of the United States would have the greatest balance threshold before they are required to file a FATCA disclosure.
OVDP Can Lessen the Offshore Tax Consequences You Face
The United States government aggressively pursues taxpayers who have failed to file taxes or who have failed to make necessary and required offshore account disclosures. However, the government also recognizes that the disclosure of foreign bank accounts is a fairly unfamiliar concept to many U.S. taxpayers, though the government is working to inform taxpayers of this obligation. In light of these considerations, the IRS offers the Offshore Voluntary Disclosure Program that can reduce that penalties a taxpayer faces provided that a comprehensive disclosure of past noncompliance is proffered by the taxpayer.
Unfortunately the IRS reserves the right to modify the program at time. In fact, the IRS has already made changes to the program that has made it less favorable for a taxpayer. Even still, the result that can be achieved through OVDP is often significantly more favorable than if a taxpayer waited until the government discovered their offshore accounts. If you have concerns about potentially undisclosed foreign accounts or assets held in the Philippines or in any other nation, call the tax professionals of the Tax Law Office of David W. Klasing at 800-681-1295 or contact us online today.
We offer reduced-rate initial consultations.
