FBAR Tax Attorney Alpharetta
U.S. Enforcement on Offshore Accounts
More Swiss banks are concluding their discussions as part of the huge U.S. settlement. Other enforcement efforts have included the John Doe summonses issued to FedEx, DHL, UPS, and HSBC relating to Sovereign.
Disclosure is clearly the best path, and the OVDP still has the highest degree of safety. Presently, taxpayers in the 2014 OVDP face a 50% penalty if they had accounts at any of the banks listed [here].
Outside of these banks, the norm within the OVDP remains 27.5%. That is far better than prosecution or much bigger civil penalties.
Some taxpayers can opt for the easier and less costly Streamlined program. This list does not impact the Streamlined programs because you must be non-willful to qualify. The Streamlined program remains very favorable for those who qualify.
All of this is part of the June 2014 improvements to the OVDP, which sparked new interest in cleaning up offshore accounts.
Rising Pressure from Enforcement and Disclosure
With over 100 Swiss banks taking the DOJ deal and FATCA disclosures increasing, everyone is rooting out Americans with increasing vigilance.
Within the OVDP:
- People who pre-cleared before the various effective dates are generally safe from the higher 50% penalty.
- As additional banks are added to the list, only those who get in under the wire will stay safe.
- The 50% penalty now applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons.
Importance of Compliance
For those who are not compliant with reporting worldwide income on U.S. tax returns, FBARs, and IRS Forms 8938, it is safest to join the OVDP or (in appropriate cases) at least the Streamlined program.
The IRS has been clear that “quiet” foreign account disclosures are not enough.
Setting aside the potential criminal liabilities, the civil penalties alone are potentially catastrophic outside one of the disclosure programs.
Severe Penalties for Willful Violations
Indeed, although the 50% penalty is high, willful civil violations can draw penalties equal to the greater of $100,000 or 50% of the balance in the account for each violation.
Example:
A Florida man was hit with civil penalties equal to 150% of his account, even though this exceeded his entire offshore account balance.
In that sense, even a 50% penalty applied once can look attractive when you consider the possibility of prosecution or even just higher civil FBAR penalties.
Final Thoughts
Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good–and very certain–deal.
Frequently Asked Questions
What is the OVDP and why is it considered the safest option?
The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers with undisclosed offshore accounts to come forward voluntarily. It provides protection from criminal prosecution and limits civil penalties, making it the safest option for compliance.
What is the 50% FBAR penalty and who is subject to it?
The 50% FBAR penalty applies to taxpayers with accounts at financial institutions or facilitators identified by the IRS, such as those listed in a John Doe summons or DOJ cooperation agreements. It’s a steep penalty designed to encourage timely disclosure.
Who qualifies for the Streamlined Filing Compliance Procedures?
Taxpayers who are non-willful in failing to report foreign accounts and meet certain residency requirements may qualify for the Streamlined program. This option is less costly and simpler than OVDP but is only available to those who can certify non-willfulness.
What are the consequences of willful FBAR violations?
Willful violations can lead to civil penalties of up to 50% of the account balance per violation, or $100,000, whichever is greater. In extreme cases, total penalties can exceed the account balance, emphasizing the importance of timely and honest disclosure.
Why are “quiet disclosures” risky?
Quiet disclosures amending past returns without joining an IRS program do not offer protection from audits or prosecution. The IRS has stated clearly that they do not consider this approach adequate and may impose full penalties.