The Foreign Bank Account Reporting laws (FBAR) require that U.S. residents timely report, on an annual basis, interests in an account at a foreign financial institution. Those reporting must only do so if the high-balance of the foreign bank account crossed the $10,000 threshold at any point in the reporting year. Although many Americans with foreign bank accounts have breezed right by questions relating to such accounts when preparing their tax returns in the past, the government has ramped up their enforcement of FBAR laws during the past decade. Now, the IRS has announced that they will be ending one of the most popular avenues to come into FBAR compliance.
The penalties for intentional FBAR noncompliance are relatively high, when considering the penalties for other tax-related crimes. If the Department of Justice can prove that a U.S. resident with a FBAR filing obligation willfully failed to report his or her foreign bank account for just one year, they may seek a penalty of up to half of the high-balance of the account and sentence of up to 10 years in a federal prison. And for those who think that because their non-compliance with the FBAR filing requirements was non-willful, the penalty can still be as high as $10,000 for each year that a foreign bank account went undisclosed.
Because the government realizes how many people had failed to comply with FBAR laws, they established the Offshore Voluntary Disclosure Program (OVDP). The OVDP is an administrative program that allows a U.S. resident that has not been compliant with FBAR filing obligations to come forward, disclose details about their foreign bank account, make a late disclosure, pay any back taxes, interest, and a penalty in order to avoid criminal prosecution. The OVDP has been very popular and thousands of Americans have come forward and come into compliance using it.
In an announcement made earlier this year, the IRS gave notice that the OVDP would be ending as of September 28, 2018. Citing decreasing participation, the IRS left various other methods of coming into FBAR compliance open (albeit, methods that do not protect the filer from criminal charges), but said that the OVDP had run its course. Their announcement leaves an open question: is there time to participate in the OVDP before it sunsets?
In an FAQ posted by the IRS, complete offshore voluntary disclosures conforming to the requirements of the OVDP must be received or postmarked by September 28, 2018 and may not be partial, incomplete, or placeholder submissions. There are a few different stages of the OVDP submission process which include a preclearance request, an initial submission, and finally, the submission of amended tax returns, forms, and additional materials. Tax professionals agree that simply filing the preclearance request prior to the September 28th deadline is not enough. If you are considering taking advantage of the OVDP before the filing deadline in late September, you should contact an experienced OVDP tax attorney as soon as possible to determine next steps. Getting all of the information required for the complete submission to the IRS can take time, as it includes getting bank statements from the foreign financial institution, amending tax returns, and filling out additional forms.
Although the IRS has left additional avenues for FBAR compliance open, the OVDP has been popular because of its protection against criminal prosecution. After September 28th, the IRS knows that it has an even stronger upper hand against those looking to come into compliance with FBAR laws. Although the OVDP isn’t for everyone, if you have foreign bank accounts that have not been disclosed, you should consult with an FBAR attorney to develop a legal strategy.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers of all walks of life. Whether you have undeclared foreign bank accounts and need to come into FBAR compliance or whether you are facing a state or federal tax audit, our zealous advocates are ready to help you develop a strategy aimed at protecting you and your family’s financial well-being. Don’t let the threat of back taxes, fines, penalties, or even jail time keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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