If you have an interest in or signature authority over a foreign account and you haven’t disclosed it to the Internal Revenue Service yet, time may be running out before the U.S. government comes calling.
For the past several years, the IRS has been cracking down on U.S. citizens with undisclosed foreign bank accounts. Swiss bank accounts have been the primary target but the U.S. now has agreements with more than 80 countries under the Foreign Account Tax Compliance Act (FATCA) for streamlined information exchange. 80,000 banks and financial institutions from all over the world, including the Cayman Islands, Israel, Hong Kong, Colombia, New Zealand, South Africa and Kuwait are now sharing account information with the U.S. government.
The U.S. Government’s focus on reducing offshore tax evasion makes doing nothing and waiting to see if you get caught a very risky option and not one that we recommend. With the number of banks that are currently turning over account information, it is highly likely that the Government may already have your information. Waiting until you get caught increases the likelihood of higher penalties and even criminal charges.
How Can You Disclose Your Foreign Bank Account?
Here are the main options available to taxpayers seeking to come into compliance with the IRS. Please note, we have only included some of the key decision factors. You should consult the IRS website or a tax attorney to determine which option is best for you.
- Streamlined Filing Compliance Procedures
- Offshore Voluntary Disclosure Program
- Delinquent FBAR Submission Procedures
- Delinquent International Information Return Submission Procedures
1. Do you qualify for the Streamlined Filing Compliance Procedures?
The Streamlined Filing Compliance Procedures are available to U.S. taxpayers residing inside or outside the United States. Taxpayers must certify they did not willfully conspire to evade paying taxes. You are not eligible if you previously have been investigated by the IRS.
If you make a submission under the Streamlined Filing Compliance Procedures, you may not participate in OVDP.
Please see the IRS website for more information on streamlined filing compliance procedures.
2. Do you qualify for the Offshore Voluntary Disclosure Program?
The Offshore Voluntary Disclosure Program (OVDP) is available to taxpayers who willfully failed to report foreign financial assets in an attempt to avoid paying taxes. OVDP offers protection from criminal liability and specific terms for resolving civil tax and penalty obligations.
To qualify, you must first determine if the IRS Criminal Investigation Lead Development Center (LDC) will allow you to enter the program. A tax attorney can assist you with contacting the LDC. If the LDC already has your account information, you probably will not be allowed to participate in the OVDP.
3. Do you qualify for the Delinquent FBAR Submission Procedures?
If you properly reported your foreign accounts on your tax returns and paid the appropriate tax, but did not file the required Report of Foreign Bank and Financial Accounts (FBAR), you may qualify to submit the delinquent FBARs without penalty.
If you have been under examination by the IRS or contacted by the IRS regarding your delinquent FBARs, you do not qualify.
Please see the IRS website for more information on submitting delinquent FBARs.
4. Delinquent International Information Return Submission Procedures
This may be an option for taxpayers who have unreported income or unpaid tax and can demonstrate reasonable cause for why they did not file the appropriate returns.
If you have been under examination by the IRS or contacted by the IRS regarding your delinquent information returns, you do not qualify.
Please see the IRS website for more information on submitting delinquent international information returns.
Evaluating The Options
Taxpayers with undisclosed foreign bank accounts who wish to come into compliance should carefully review the options and determine which programs they are qualified to participate in before the U.S. Government comes calling. Once you are under investigation by the IRS, your options are limited, penalties are greater and you could go to jail.