U.S. persons that have a financial interest in or signatory authority over foreign bank and financial accounts must report these accounts to the IRS, assuming the aggregate value of these accounts exceed $10,000. This reporting obligation applies even if there is no tax due. Taxpayers who have failed to report foreign bank and financial accounts to the IRS, should act quickly to come into compliance with their reporting requirements or otherwise enter an amnesty program that will be expiring soon. Taxpayers who wish to resolve their failure to report under the current amnesty program, must submit completed Offshore Voluntary Disclosure Program (OVDP) intake forms by September 28, 2018.
The OVDP was introduced in 2009 (and extended in 2011, 2012, to the current 2014 program), and was designed to allow taxpayers with unreported offshore financial accounts to voluntarily resolve past tax and reporting non-compliance in exchange for a promise of no criminal prosecution and limited penalty exposure. OVDP was always intended to be a temporary program. Non-compliant taxpayers who wish to enter OVDP must do so by September 28, 2018. Otherwise, they may face criminal and civil penalties.
Since a substantial amount of time is needed to obtain records relating to offshore assets and prepare the intake forms, taxpayers with unreported offshore assets should immediately seek counsel to discuss their options for coming into compliance. Additionally, a preclearance request is required with the IRS to determine eligibility for the amnesty program, and there may be delays in the process which may affect the taxpayer’s OVDP September 28th deadline.
IRS Tax Enforcement Options
Taxpayers who have not reported their offshore financial assets have one last opportunity to take advantage of the OVDP under its current terms. After September 28th, the IRS stated that it will continue to use tools to combat offshore tax avoidance, including whistleblower leads, civil examination and criminal prosecution. Since 2009, the IRS Criminal Investigation unit has indicted 1,545 taxpayers on criminal violations related to international activities, of which 671 taxpayers were indicted on international criminal tax violations.
The IRS explicitly stated that it will be actively engaged in finding out the identities of individuals with foreign accounts. The IRS noted that it has information resources and data analytics to pursue non-compliant taxpayers. Additionally, many non-U.S. banks under investigation themselves continue to provide the IRS with information of accounts owned by Americans which is leading to audits and criminal investigations.
Taxpayers may still voluntarily disclose their foreign financial accounts after September 28th to avoid criminal prosecution. However, they will be subject to a significant statutory penalty regime without the OVDP penalty limitation. For non-willful taxpayers who find the OVDP or traditional voluntary disclosure practice penalty regimes to be undesirable options, one of the other approved programs may be a better fit.
One such program is the Streamlined Filing Compliance Procedures, and it will remain in place. It is only for taxpayers who might not have been aware of their filing obligations and helps such taxpayers to come into compliance. Additionally, the IRS will continue to offer the following options to repair previous failures to comply with U.S. tax and information return obligations of foreign undisclosed assets:
• Voluntary Disclosure Program within IRS-Criminal Investigation;
• FBAR Delinquent submission provisions; and
• International information Delinquent return submission provisions.
We urge non-compliant taxpayers to seek legal advice on how to navigate the complex compliance options that would best suit their needs.
Mayer Nazarian, Chair of the Tax Department - firstname.lastname@example.org
Eli Akhavan, Chair of the Private Clients and Wealth Preservation Practice Group - email@example.com
Aman Badyal - firstname.lastname@example.org
Elizabeth Chamulak - email@example.com
Elizabeth Nelson - firstname.lastname@example.org
Farzaneh Savoji - email@example.com
Gary Edelstone - firstname.lastname@example.org
Gordon Einstein - email@example.com
Michael Shaff - firstname.lastname@example.org
Jon Hughes - email@example.com
DISCLAIMER: This article is not intended to provide legal advice, and no legal or business decision should be made based on its contents.