President-elect Trump and his administration are taking office in a month and with every new presidential administration, there is always a degree of uncertainty related to upcoming changes to tax laws. And the amnesty programs offered to U.S. taxpayers with foreign bank accounts are no exception. In addition to the drastic penalties imposed and the potential for time to be running out to partake in the amnesty programs, IRS Commissioner Koskinen said “As we continue to receive more information on foreign accounts, people’s ability to avoid detection becomes harder and harder. The IRS continues to urge those people with international tax issues to come forward to meet their tax obligations.”
In addition, the IRS has stated that it can change the terms of the programs at any time or close them altogether, so taxpayers looking to take advantage of these programs should act quickly. If so, time may be running out for you to come forward to disclose those non-U.S. assets and income and benefit from existing IRS programs that may reduce or eliminate the penalties you otherwise may owe.
Due to the significant penalties and interest assessed for noncompliance with foreign financial account reporting requirements, Dale Mason, International Tax Director at The Wolf Group, suggests that taxpayers who have yet to come forward to disclose foreign financial accounts do so as soon as possible to ensure that they are able to make a voluntary disclosure.
Since 2009, the IRS has made the non-reporting of foreign financial accounts a priority in their tax enforcement efforts. Due partially to the severe penalties that the IRS may charge for the failure to report these accounts, the IRS has been successful in encouraging taxpayers to come forward voluntarily through a series of partial amnesty programs rather than chasing down each individual non-filer.
IRS Commissioner John Koskinen announced in October 2016 that since 2009, the IRS has now collected over $10 billion in tax, interest, and penalties from over 100,000 taxpayers who have filed under one of the IRS programs. This includes $9.9 billion from 55,800 taxpayers who have filed under the Offshore Voluntary Disclosure Program (“OVDP”) and another $450 million from 48,000 taxpayers who have filed under the Streamlined Filing Compliance Procedures.
There is Still Time for Taxpayers to Partake in Amnesty:
The OVDP and Streamlined Filing Compliance Procedures allow taxpayers who have not reported all of their foreign financial assets and income to the IRS to do so voluntarily for prior years before the IRS is aware of their noncompliance. Under the OVDP, taxpayers must generally file 8 years of delinquent or amended tax returns and 8 years of Foreign Bank Account Reports (“FBARs”), in addition to various miscellaneous forms required by the IRS. They then pay the taxes, interest, and penalties due, including a penalty of 27.5% or 50% of the unreported account balances. The Streamlined Procedures, which have more restrictive eligibility requirements, including that the noncompliance was not “willful,” generally require filing 3 years of tax returns and 6 years of FBARs, and include a penalty of 0% or 5%.
Filing through these programs allows certain taxpayers to reduce or in some cases eliminate the penalties that might otherwise be charged for failing to file tax returns, FBARs, and other foreign information returns. If the IRS discovers a failure to file an FBAR, the penalty could be up to the greater of 50% of the account balance or $100,000 per violation. Other forms carry a $10,000 per violation penalty. So while the available programs may still result in substantial penalties, they often offer a better result than what a taxpayer would receive if they are caught by the IRS.
One of the requirements for all of the IRS programs is that the taxpayer makes his voluntary disclosure before the IRS knows of the noncompliance. As The Wolf Group previously reported to its clients in a prior article, (, the IRS has several ways to find out about undisclosed foreign financial accounts and continues to pursue those taxpayers. These methods include whistleblowers, the reporting required under the Foreign Account Tax Compliance Act (“FATCA”) (under which non-U.S. financial institutions must report information about U.S. account holders to the IRS, which is why many taxpayers with foreign accounts are now receiving Forms W-9 from their non-U.S. banks), and the information gathered through tax information exchange agreements and from disclosures made under the various IRS voluntary disclosure programs.
The Wolf Group has assisted hundreds of clients in making voluntary disclosures of unreported foreign accounts in order to avoid the draconian penalties that may be assessed by the IRS. Please contact our New Client Lead, Fan Chen, at 703-652-1737 or at firstname.lastname@example.org to learn how we can help with U.S. tax compliance complexities.