Why are there so many people who have used Turbo Tax and other home tax software solutions (including the free IRS version) who are now facing tens of thousands of dollars in FBAR penalties, fines and IRS audits? Because Turbo Tax is no solution for FBAR or any other remotely complex personal or business tax return. Unfortunately for many Americans, the bill from the IRS will serve as a stark reminder that the short-cut is often the most expensive journey.
Take the recent example of a foreign national living and working in the United States who failed to report two offshore bank accounts to the IRS. There wasn’t any willful attempt to evade taxes. The person had these accounts before they came to the United States. Unfortunately, the IRS is not a forgiving or sympathetic agency. The foreign national was fined $10,000 in FBAR penalties for each account omitted, even though their conduct was obviously “non-willful” to most observers.
We have had other clients who have listed many assets accurately, and when they completed the streamlined domestic offshore procedures the IRS allocated the 5% penalty not just to the undeclared accounts, but to their entire investment portfolio. We are aggressively challenging this decision by the revenue officer, but it is important to understand the aggressive tactics the IRS is taking in these cases. Should you consider OVDP or streamlined? What impact will PFIC calculations have upon your tax burden?
Some observers have declared that the failure to disclose an offshore account or two is more expensive and egregious than the act of tax evasion in some cases. The lessons as we approach year-end tax planning are obvious:
Turbo Tax is no solution for FBAR or other complex tax returns involving offshore investments, foreign mutual funds, foreign corporate ownership or offshore bank accounts. It fails to ask the questions necessary to be in full compliance with the IRS on many issues.
How does the IRS know? Banks around the world are sending your personal taxpayer identification along with your country of residence and all information about your accounts and transactions directly to the IRS. The time to come into compliance with IRS FBAR reporting requirements is now. We invite you to contact us for a free consultation at 866-631-3470. Ask about the protections of the attorney-client privilege and the cost savings of having your legal, tax and accounting services under a single source.
