Topic: Foreign Accounts
Roderick Smith and Stephen Howarth of the UK left out a few details when reporting the sales of their computer technology company. They failed to disclose at least 11 foreign bank accounts and ultimately evaded around £500,000 in UK income tax. As a result, Smith received 15 months in jail, and Howarth 12 months, to be followed by another 15 and 12 months, respectively, if the two do not pay within 24 months. Howarth never registered his accounts with the Offshore Disclosure Facility (ODF), a campaign designed to allow taxpayers who directly or indirectly held offshore accounts and who owed UK tax on those accounts to settle outstanding liabilities with a guaranteed 10% fixed penalty. Smith did register with the ODF, but only mentioned 1 of his 12 offshore accounts.
The IRS began (or rather, re-started) a similar program called the open-ended Offshore Voluntary Disclosure Program (OVDP) a year ago, but the Service “may end the 2012 program at any time in the future,” according to the IRS website, so those with offshore accounts and corresponding tax liabilities should act now. While the current program has a higher penalty rate than similar programs in the past, it offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution later.
Disclosing foreign accounts enables U.S. taxpayers to become compliant, avoid substantial civil penalties, and essentially eliminate the risk of criminal prosecution. Those who fail to disclose such accounts run the risk of even higher penalties, including the fraud penalty and foreign information return penalties, not to mention criminal prosecution.
Hiring a tax attorney is the best way to minimize possible civil and criminal penalties because he or she knows how to navigate the nuanced tax laws relating to foreign account disclosure requirements.