As you may have heard from one of our recent blog posts, time is running very short on your ability to take advantage of government programs set up to help out Americans that have undisclosed overseas bank accounts. As we move into June, the provisions of FATCA that worry many Americans take effect in less than 30 days. This could mean heavy penalties, back-taxes and even jail time for thousands of Americans unless the appropriate steps are taken right away – and tax attorneys all over the country are gearing up.
As a refresher, the Foreign Accounting Tax Compliance Act requires foreign banking institutions to report account information of Americans directly to the U.S. government. If they fail to do so, they are subject to a 30% withholding of any U.S.-source payments made to them. Because most foreign banks want to avoid that kind of withholding, over 77,000 foreign banks have already registered for the program and will begin reporting the names of Americans to the feds starting on July 1st.
Some foreign governments have made the decision to cooperate with the United States without leaving it up to the banks. Many governments have entered into Intergovernmental Agreements that require the country’s banks to report American account information directly to the foreign government, which is then forwarded to the United States. This may be even more dangerous as banks are usually required by law to hand over the account information.
Because Americans are required to indicate their ownership of foreign accounts on their personal income taxes and file an FBAR, the IRS will be checking lists of accounts that they receive against their system of tax returns and FBAR’s. If there isn’t a matching filing by the U.S. taxpayer, it is highly likely that an audit will follow.
Last week we reported that a federal jury agreed with the Department of Justice that the mere failure to disclose the account is enough to show “willful” noncompliance. This means that taxpayers that do not disclose their interest in a foreign account will be liable for steep penalties that include 50 percent of the balance of the account for each year a FBAR was not filed. Further, the taxpayer may be subject to up to five years in federal prison for each tax year that they willfully failed to pay tax on the income produced by those accounts.
There is practically only one way to avoid possible prison time and the “willful penalty” that would be assessed by the IRS if the accounts were discovered. The 2012 Offshore Voluntary Disclosure Initiative provides a way out for those who fear they will be discovered for not disclosing their interest in a foreign account. But the IRS can revoke this program at any time and if the government finds out about your account any other way, you aren’t eligible to participate.
The tax professionals at the Tax Law Offices of David W. Klasing have the experience to help you through the sometimes-complicated steps of making a disclosure. There isn’t much time left before names start flowing into the IRS offices and once they find your name on that list, it’s too late. Contact us today and sleep easy tonight.