Hiding money in an overseas bank account has long been understood as a way that the wealthy could keep their money off of the proverbial “grid”. Several books, television shows, and films have described or depicted wealthy Americans boarding aircrafts with hundreds of thousands of dollars in cash and depositing them in a Swiss bank account. It goes without saying that although the representations in the media used to have some accuracy, it isn’t the norm anymore. As of late, the Department of Justice and the Department of the Treasury, including the IRS, have been seriously cracking down on taxpayers hiding their monies overseas and a new update to a recently-enacted information sharing program should worry any taxpayers with foreign accounts that have yet to be disclosed to the U.S. government.
According to an announcement made the by the IRS, the Information Data Exchange Service (IDES) will broaden its criteria for types of accounts that are reported by foreign jurisdictions to the IRS and to other competent taxing authorities around the world. The changes were requested by foreign financial institutions themselves. In addition, some changes were made to reflect information sharing policies of the Organization for Economic Cooperation and Development (OECD). The net effect of the change will be an increased amount of foreign bank account information that will be shared through the data exchange.
The Foreign Bank Account Reporting (FBAR) laws require that U.S. taxpayers with foreign bank accounts overseas that have a high-balance of $10,000 or more at any point in the year report such account to the U.S. government. There isn’t any additional tax or penalty for having a foreign account, but because U.S. residents are taxed on their worldwide income, the Treasury Department has an interest in keeping tabs on where your money is. The failure to file an FBAR could lead to hefty penalties, interest, and fines. In addition to monetary punishments, taxpayers who are found to have willfully failed to file an FBAR can spend time in a federal prison.
In 2010, Congress passed, and President Obama signed into law, the Foreign Account Tax Compliance Act (FATCA). Under FATCA, foreign banks are required to provide information about foreign bank accounts that are owned (actually or beneficially) by Americans. Foreign banks who do not comply with the requirements of FATCA face a 30% withholding on any U.S. sourced income. As transactions from the United States are typically a large portion of a foreign bank’s business, financial institutions from around the world are lining up to participate in the data exchange. Some countries have entered into Intergovernmental Agreements (IGA’s) whereby banks in their country will provide information to their domestic tax authority who will then share it with the IRS. In other countries, the foreign banks themselves will send information about accounts with U.S. owners directly to the IRS.
Although it seems relatively certain that it is only a matter of time until the government receives the names of all Americans with foreign bank accounts, taxpayers with secret foreign bank accounts still have a way out. The IRS has established the Offshore Voluntary Disclosure Program (OVDP), wherein which taxpayers with undeclared foreign bank accounts can come forward, provide detailed information about the account, and avoid a criminal prosecution. Participants are still required to pay penalties, interest, and any back taxes, but under the terms of the program, they can avoid spending time in a federal prison for failing to declare their foreign account. The determination as to whether a taxpayer willfully failed to file an FBAR has been a mystery, of sorts. The Department of Justice has not (and has said that they will not), define “willful” for the purposes of failing to file an FBAR. This lack of transparency leaves taxpayers questioning whether their action is willful or not, the difference being time in a federal prison. The OVDP can be a great way for taxpayers to ensure that they won’t’ spend time behind bars, but it is a limited time offer. The IRS can end the program at any time.
If you have a foreign bank account that has not been disclosed to the IRS, it is in your best interest to contact an experienced tax attorney as soon as possible. With information flowing from banks all over the world, it is truly only a matter of time until your information is uncovered and an investigation is opened with regard to your financial affairs. A tax attorney with years of experience assisting taxpayers with FBAR issues will be an invaluable asset to you and your family. Many times, taxpayers under investigation feel as if they can take on an investigation alone. What most fail to realize is that the IRS agents and DOJ attorneys involved are trained to win convictions. They will ask you the right questions that will produce incriminating answers. Having a tax attorney present will ensure that you only answer the questions that you are required to and that you don’t produce any evidence that could be used against you unless you are legally required to do so.
The tax and accounting professionals at the tax law offices of David W. Klasing have extensive experience representing taxpayers from all walks of life dealing with issues ranging from income tax audits and examinations, to full blown civil or criminal tax litigation. Having a tax attorney on your side who is also a CPA can mean a world of difference. Our team of accountants and tax attorneys are ready to zealously advocate for your best interests. When the IRS or state taxing authority is coming after you, you don’t have to face them alone. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation. Also, be sure to check out our YouTube channel for helpful tax information.
