In September 2018, the IRS permanently discontinued its Offshore Voluntary Disclosure Program (OVDP), which previously created an avenue for noncompliant taxpayers to report foreign accounts and, in so doing, avoid the worst of the potential penalties for nondisclosure – including the danger of federal criminal prosecution. To replace the OVDP, the Internal Revenue Service recently introduced updated procedural guidelines for making voluntary disclosures. These new voluntary disclosure procedures, which are geared toward taxpayers with criminal exposure (i.e. indicators of willfulness / Badges of Fraud), offer critical opportunities for making disclosures with relative safety. “Relative,” however, is the key word here, with new regulations bringing new risks. Before making a voluntary disclosure (streamlined Expat or Domestic or delinquent information filing with penalty abatement) of any kind, be sure to discuss your options thoroughly with an experienced international tax lawyer, like David W. Klasing, who can help you evaluate the pros and cons of various approaches to offshore account reporting.
In November 2018, the Internal Revenue Service released a memo (see “updated procedural guidelines” above) introducing new IRS standards and practices for offshore and domestic voluntary disclosures. The memo – which is applicable to “all voluntary disclosures received after the closing of the 2014 OVDP on September 28, 2018,” and, at the IRS’ discretion, “other voluntary disclosures (non-offshore) received on or before September 28, 2018” – makes at least five major departures from previous IRS guidelines in this area:
14457”), which ask for information about business entities, financial assets, tax preparers or other third parties (where applicable), and the general circumstances surrounding the noncompliance.
Danger: The IRS has publicly stated that if a taxpayer attempts to utilize their appeal rights in an offshore voluntary disclosure, they will apply protectively apply the civil fraud penalty to multiple tax years, instead of just one, or open up more years (8 instead of 6) to the voluntary disclosure procedure in response.
It is essential to report foreign investments and financial accounts to the IRS. Ordinarily, this is accomplished by filing an FBAR, filing Form 8938 (Statement of Specified Foreign Financial Assets), reporting the funds on income tax returns, and/or filing other tax forms as needed, such as Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations). Taxpayers who willfully fail to take these actions, especially where coupled with concealing offshore income from the IRS, are placing themselves at risk for tax evasion and willful information reporting noncompliance criminal prosecution and substantial civil penalties. For individuals in this situation, the updated disclosure guidelines may offer the safest and least costly path back to offshore tax compliance. However, it is essential to assess the situation and explore alternative options, such as streamlined disclosures, where appropriate.
If you need to report an undisclosed foreign account, are concerned about a foreign account tax audit, or have questions about whether reporting requirements like FBAR and the Foreign Account Tax Compliance Act (FATCA) apply to you or your business, the FBAR attorneys at the Tax Law Office of David W. Klasing can help. Contact us online to arrange a reduced-rate consultation or call us today at (800) 681-1295.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here:
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