Receiving a letter from your foreign financial institution or the IRS regarding undisclosed accounts can expose a taxpayer to significant civil and criminal liability. Depending on the facts and circumstances present the individual could face severe civil fines and penalties or exponentially more severe criminal penalties. For instance penalties for non-compliance with the Banking Secrecy Act (BSA) due to a failure to file Report of foreign Bank and Financial Accounts (FBAR) via FinCEN Form 114 can be severe. Civil consequences for the failure to disclose a foreign financial account with a balance, that at any time during the tax year, exceeds $10,000 and the taxpayer has an interest in the account or signature authority over the account can include a fine of $10,000 per an undisclosed account per a year. If the violation was perceived as being willful by the IRS agent, penalties can easily eclipse the balance of the accounts and your matter may be referred to the Criminal Investigation Division of the IRS.
In short, if you suspect that you may have tax problems due to undisclosed foreign accounts it is never advisable to ignore the issue and simply hope that it goes away. Discussing your foreign account disclosure concerns with an experienced Tax Attorney can mitigate the consequences of past non-disclosures.
If you wait to make disclosures, OVDP may become unavailable
Some people take the gamble and hope that the IRS will never discover their past tax compliance issues. This approach presents a number of problems, however. To start with, doing nothing practically ensures that your potential tax issue will linger and continue to affect your finances and life. That is, making necessary disclosures and paying applicable penalties while mitigating the potential criminal tax consequences is the only way to come back into compliance with the system. Of further importance is the fact that if the taxpayer comes under audit or under investigation by the IRS’ Criminal Investigation Division, they will no longer qualify for any version of the Offshore Voluntary Disclosure Programs (OVDP). Becoming ineligible for programs like these can remove any leverage the taxpayer has in subsequent negotiations. Generally, waiting to take action until you are already under criminal investigation will result in disastrous outcomes compared to those available with the OVDP.
The Offshore Voluntary Disclosure programs can be modified at any time
The Offshore Voluntary Disclosure Initiative (OVDI) programs have been offered since at least 2009 to encourage US taxpayers with undisclosed foreign financial accounts to come forward and achieve compliance. Versions of the OVDP program made available by the IRS are discretionary programs. As discretionary programs, these programs can be halted or modified at any time by the IRS. In fact, the last round of changes to OVDP were announced in June 2014. These changes generally resulted in less favorable results for those who filed after the changes went into effect. Some of the changes to OVDP include:
- Filers are now required to submit all financial account statements and to pay the offshore penalty at the time of the application.
- If knowledge that a particular financial institution is under investigation by the IRS or the US Department of Justice becomes public prior to the taxpayer’s submission of OVDP pre-clearance, the offshore penalty will double from 27.5% to 50%.
- Any taxpayer with an undisclosed account in certain financial institutions named on IRS.gov face a 50% miscellaneous offshore penalty if they submit a pre-clearance letter. Named foreign financial institutions and facilitators include UBS AG, Credit Suisse AG, HSBC India, Sovereign Management & Legal, Ltd and Bank Leumi le-Israel B.M.
The above identifies only a few of the changes to 2014 OVDP. Discussing your particular circumstances with an experienced Tax Attorney can help you more fully understand the changing program benefits and requirements and how it applies to your situation.
A Tax Attorney is essential to navigating the various OVDP initiatives
The IRS’ Offshore Voluntary Disclosure Program (OVDP) may offer a path to FBAR compliance. However, before entering into one of the OVDP variants, consultation with an experienced Tax Attorney and CPA, like David W. Klasing, is essential. Different versions of the program come with different advantages and risks. Many people are tempted by the Streamline program’s reduced penalties, but the decision to enter into the program should only be made after a careful consultation with a tax professional because the streamlined program carries no tax crime amnesty or assurance that the matter won’t be referred to the Criminal Investigation Division of the IRS. To schedule a reduced rate tax consultation regarding your FBAR or OVDP concerns, call The Tax Law Offices of David W. Klasing at 800-681-1295.
