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If you have offshore financial accounts that collectively contain more than $10,000 on any single day in the calendar year, you are legally required to report their details to the IRS every year. Failure to do so can result in heavy civil penalties and possibly criminal charges.
In June 2014 the IRS announced important changes to its Offshore Voluntary Disclosure Program (OVDP), which allows taxpayers to voluntarily come into compliance with their tax reporting obligations, pay a smaller civil penalty, and avoid prosecution. These changes amended the penalty structure and streamlined the program administration.
How the penalties are structured
The OVDP requires you to pay a penalty that replaces any others that would ordinarily apply for breach of international tax compliance. There is now a two-tier structure that imposes a different penalty for willful and non-willful violations.
The regular penalty percentage of 27.5% will continue to apply. But if you banked with institutions or used promoters that have been investigated by the US government, you will be subject to a 50% offshore penalty.
Filing compliance procedures for non-wilful conduct
If you certify under the penalty of perjury that your non-compliance was not willful, you are eligible for the Streamlined Procedure, which allows you to submit three years of tax returns and six years of FBARs. There is no pre-clearance required and the only documents you need to supply are the certification and the required returns. US residents will also be subjected to a 5% FBAR penalty. There is no longer any maximum tax threshold and/or risk assessment.
If you choose to file under the Streamlined Procedure, you cannot file a voluntary disclosure later. You will also be subject to all applicable penalties if your filing is later challenged by the IRS.
The certification process
Your certification should be prepared by an attorney who has thoroughly reviewed the situation. They can advise you if you’re better off entering the Streamlined Procedure or the Offshore Voluntary Disclosure Program. It’s important that you receive legal counsel on this matter: it’s not something you want to take a chance on.
Willful violations
If you willfully neglected to report your offshore accounts, you cannot take advantage of the Streamlined Procedure. You must file a voluntary disclosure. The Supreme Court defines willfulness as the “intentional violation of a known legal duty.” Because various courts interpret it differently in the context of FBAR non-compliance, consult with your attorney to confirm that it actually does apply to your situation. Please contact us today to learn more!
Weisberg Kainen Mark, PL
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