The IRS recently warned that the agency has collected $8 billion in taxes and fines collected from offshore bank account penalties which were a result of not conforming to the Foreign Account Tax Compliance Act. According to a report by Forbes contributor and tax lawyer Robert Wood, the IRS has begun to warn taxpayers, both U.S. citizens and residents, with offshore accounts that if they have not properly disclosed their financial information, they will be subject to taxes and penalties unless they join the Offshore Voluntary Disclosure Program or the streamlined procedures.
Taxpayers have two options
Individuals with offshore bank accounts can join the OVDP or apply for its streamlined program to mitigate past errors or omissions on their tax returns disclosures. These programs will afford taxpayers the opportunity to avoid potential penalties for not complying with the FATCA. This is crucial for taxpayers because under the FATCA, there is now an intergovernmental network between the U.S. and various partner jurisdictions to share foreign account information. As a result, the IRS warned that more thorough investigations into offshore accounts will be conducted this year.
For taxpayers who may be in violation
For most taxpayers, the offshore account penalties under the OVDP is 27.5 percent, as compared to the normal fine that is 50 percent of the foreign account balance. It is important to note though, that the IRS now pursues all taxpayers with accounts at financial institutions overseas, so the offshore account penalties will be universally applicable. Further, for those who are not compliant with reporting worldwide income on U.S. tax returns, taxpayers should apply for eligibility in the OVDP. The IRS has warned taxpayers that along with the potential criminal liabilities for failing to disclose foreign accounts, the civil penalties could be staggering for individuals who have not properly disclosed their financial information.
The significance of the new initiative
As always, willful civil violations for failing to disclose foreign accounts will be subject to penalties, but now the IRS has implemented a more diligent approach with third party investigators. These offshore account penalties include the same level at $100,000, or 50 percent, of the account balance for each taxpayer violation.
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