IRS Voluntary Disclosures / Offshore Compliance

If you have foreign financial accounts which, in the aggregate, have more than $10,000 on any one day in the calendar year,  the United States government mandates that you report the foreign accounts on an annual basis to the IRS and to FinCen. There are many forms that need to be completed and filed, including FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR).  The failure to report your offshore accounts can result in harsh civil penalties and even criminal charges.

Our attorneys at Weisberg Kainen Mark, PL are experienced in these reporting requirements, and will take the time to explain to you all of your options and the filing obligations relating to your offshore financial accounts. We are fluent in the language of the FBAR documents and other guidelines established by the IRS, and have represented taxpayers from all over the world in the Offshore Voluntary Disclosure since its inception in 2009, and prior to that in less formal programs with the IRS. Our firm strives to protect our clients’ freedom and their wealth, while complying with the requirements of the law. Having a foreign bank account is not illegal, so long as you properly report it.  Contact us today to further discuss the disclosure of your offshore accounts, offshore entities and offshore assets.

2014 Offshore Voluntary Disclosure Program: The IRS announced on June 18, 2014 major changes to its Offshore Voluntary Disclosure Program effective July 1, 2014 (the “2014 OVDP”).   If you have undisclosed offshore bank accounts, contact our firm today to ensure that your information and documents are submitted before this opportunity passes. We can advise you how these changes in the law may affect your case. We review your facts and determine whether you qualify for the IRS Offshore Voluntary Disclosure Program or the new Streamlined Procedures for non-willful conduct.

If you have failed to file your tax returns or have provided false or incomplete information with respect to any material item on your tax returns and you fear the potential of prosecution, do not hesitate to speak with one of our knowledgeable attorneys. When we assist in making a proper Voluntary Disclosure to the IRS, your civil penalties may be lessened and you may avoid any criminal prosecution.

Prior to 2014, the existing OVDP had been in place since March 2009.  The program allows a taxpayer to voluntarily come into compliance with U.S. tax reporting obligations and pay a reduced civil penalty rather than facing either greater civil penalties or criminal prosecution.  The 2014 OVDP makes significant changes to the penalty structure, as well as changes to streamline the administration of the program.

Penalty Structure

Over time, the penalty structure has been changed significantly.  As part of the voluntary disclosure, the taxpayer must agree to pay a penalty in place of any FBAR penalties that would otherwise apply and in place of any penalties that would apply for the non-filing of various information returns that are also required for international tax compliance.  For the first time, the IRS has implemented a two-tier structure that prescribes a different penalty for those whose violations were willful and those whose violations were not willful.

The OVDP penalty percentage of 27.5% will continue.  However, the 2014 OVDP now has a 50% offshore penalty for those taxpayers who had banked with institutions or utilized promoters that the U.S. government has investigated or who have been publicly identified as having been issued a summons for U.S. taxpayer activity.  The IRS has published an ever growing list of such banks.

Streamlined Filing Compliance Procedures for Taxpayers with Non-Willful Conduct

The second significant change is the expansion of the streamlined process, which had been in place since 2012, to all taxpayers who certify that their non-compliance was not due to willfulness.  The streamlined process allows for taxpayers to submit 3 years of tax returns and 6 years of FBARs.  There is no preclearance procedure for the streamlined process and no documentation other than the required returns and certification.  In addition, there is no longer any maximum tax threshold (previously $1,500) and no risk assessment, which in the 2012 program had limited the streamlined program to those considered low risk.

The streamlined process differs slightly between U.S. residents and non-U.S. residents.

  • Non-Residents:  U.S. taxpayers living outside of the country are eligible if they meet a strict non-residency test and sign a certification (under penalty of perjury) that the failure to report all income, pay all tax, and submit all required information returns (including FBARs) resulted from non-willful conduct.  In this case, they must file 3 years tax returns and 6 years FBARs, and there will be no FBAR penalty.
  • Residents:  U.S. taxpayers living in the country are eligible if they have previously filed income tax returns and sign a certification (under penalty of perjury) that the failure to report all foreign income and submit all required information returns (including FBARs) resulted from non-willful conduct.  In this case, they must file 3 years tax returns and 6 years FBARs, and there will be a 5% FBAR penalty.

If a taxpayer elects to file under the Streamlined Procedure, the taxpayer cannot later file a voluntary disclosure.  Filing pursuant to the Streamlined Procedures is subject to all applicable penalties if the filing is challenged by the IRS.

The certification process should be prepared by counsel after a thorough review of the facts and circumstances. Such an analysis may result in advising the taxpayer to enter the Streamlined Procedure or to enter the Offshore Voluntary Disclosure Program. This analysis should be done only by skilled counsel and not left to chance or guess work.

Definition of “Willfulness”

A critical issue that taxpayers and practitioners confront is whether conduct was “willful.” The willfulness determination dictates whether a taxpayer should proceed with the Streamlined Procedure (designed for non-willful conduct) or the 2014 OVDP (designed for willful conduct).  An individual choosing to proceed under the Streamlined Procedure will be required to sign a certification, under penalty of perjury, that the “failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct.” It is a fact- intensive analysis as to whether an individual’s failure to report a foreign bank account to the IRS was willful.  The Supreme Court’s definition of willfulness is the “intentional violation of a known legal duty.”  How this standard applies in the context of FBAR violations is subject to different interpretations in various courts.  This legal determination should be made with the assistance and advice of an attorney.

Offshore Reporting Compliance

In addition to fixing problems of past non-filing, the attorneys at Weisberg Kainen Mark PL are here to make sure that our clients are in compliance with various IRS and FinCen requirements to properly report the existence of any offshore financial accounts, offshore assets and offshore entities, including those requirements found on IRS Form 1040, IRS Form 8938, FinCen Form 114 (FBAR), IRS Form 5471, IRS Form 3520, IRS 3520-A, IRS Form 926 and IRS Form 8865.  You are permitted to have offshore assets, however the failure to properly report on these forms can result in substantial civil penalties and potential criminal charges.  We work with qualified Certified Public Accountants to ensure that you are properly reporting your assets around the world.