The IRS is Closing In
The cold hard truth is that the IRS foreign income and asset detection net is closing in on those that have failed to make a voluntary disclosure to date. Taxpayers that fail to take advantage of this program run the risk of being detected by the IRS, at which point the program will no longer be available to them.
Increasingly, information regarding foreign activity is becoming available to the IRS through:
- Tax treaties with foreign nations
- Intelligence gathered from other voluntary disclosures
- Information gathered from paid informants and whistleblowers
- The imposition of the Foreign Account Tax Compliance Act (FATCA)
- Foreign Financial Asset Reporting under the new IRS form 8938, which is required with the filing of a taxpayer’s personal income tax return
An experienced FBAR lawyer can help you navigate the complicated process.
Publicity and Increased Risks
Heightened Public Awareness
The ever-increasing publicity concerning the IRS’s efforts to reduce the Tax Gap for income taxes evaded related to Foreign Accounts and Assets, coupled with the publicity surrounding the addition of form 8938 to the individual tax returns of U.S. citizens and residents, creates an ever-increasing risk that an out-of-compliance taxpayer’s non-compliance discovered by the taxing authorities will be viewed as purposeful and willful rather than merely negligent or even grossly negligent.
Rising Criminal Risks
The associated risk of facing criminal rather than civil consequences is also rising because only willful conduct can be criminally prosecuted. Keeping in mind that the difference between willful and negligent behavior is merely a state of mind, the IRS is increasingly becoming of the opinion that taxpayers could not conceivably have been ignorant about the requirement of filing an FBAR TDF 90-22.1 (FinCen 114) or reporting foreign income because of the 8938 requirement and the public notice surrounding the imposition of this form.
The Consequences of Non-Disclosure
Failing to acknowledge foreign income when expressly asked in question 7 of Part III on the Form 1040 schedule raises suspicion.
Non-compliant taxpayers should enter the 2012 OVDI program as soon as possible rather than face the possibility of defending a criminal charge which would largely focus on circumstantial evidence surrounding their state of mind at the time of their noncompliance.
An experienced attorney can provide critical guidance to help mitigate risks and ensure compliance.