Why should a US taxpayer consider the Offshore Voluntary Disclosure Program or OVDP to come into compliance with IRS FBAR and offshore reporting requirements? Janathan Allen, an experienced San Diego OVDP attorney explains the advantages of IRS offshore disclosure programs, and why it is important to comply:
FATCA established an historic change in how money and taxes are tracked and reported from a global perspective. FATCA requires offshore banks, financial institutions and sovereign tax authorities to provide specific bank account, transaction, asset and income information to the IRS. This information is directly associated with the unique identification credentials that allow the IRS to attach data to specific US taxpayers – citizens, foreign nationals or residents. The US Justice Department began with a few major Swiss banks and investment houses by taking them to international court on charges of aiding and abetting US citizens with tax evasion. A successful and substantial settlement with one of the largest Swiss banks sent a shot across the bow of banks and financial institutions worldwide. Since, more than 100 countries and tens of thousands of international banks, investment houses and sovereign tax authorities have agreed to send detailed data to the IRS regarding the offshore activities of US taxpayers.
I am often asked “How will they associate that information back to me?” The information provided to the IRS includes your taxpayer ID or a unique identification number associated with you personally. How are you able to access those funds? What credentials will you provide to your offshore bank to access your money? Those same credentials are being provided to the IRS, and this will lead them directly to you. It is as simple as sorting an excel spreadsheet – and soon the IRS has a list of most or all of your offshore bank accounts, assets and income. The next step is equally as simple: compare this list to the disclosures you have made on your past 8 federal tax returns and associated FBARs. If you have omitted one bank account, under-reported any account balance or income, or attempted to hide assets and income offshore expect an IRS audit in your near future. This is why it is important to contact an experienced San Diego OVDP attorney with extensive international tax and offshore expertise.
The penalty for failing to fully, accurately and transparently disclosing offshore accounts, assets and income is draconian and harsh:
50% of the combined total of all of your offshore accounts at the highest accumulated balance at any point in the year for each of the past six to eight years (regardless of present account balances or investment value), or $100,000 per incidence – whichever is higher.
If you have any offshore bank accounts, investments, assets or income you are required to report them to the IRS, even if you are simply a foreign national who already had bank accounts in your native country, or owned real estate or a local business prior to coming to the United States.
Many US taxpayers did not fully or accurately report all of their offshore accounts and activity for the past 8 years. The IRS has offered two programs to help US taxpayers to come into compliance with FBAR reporting and to voluntarily disclose offshore assets:
- The OVDP or Offshore Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures / Streamlined Foreign Offshore Procedures
As an experienced San Diego OVDP attorney and seasoned international tax expert I can tell you the primary issue in these cases is risk. Are you willing to risk exposure to 50% penalties? Are you willing to risk a very real possibility of going to jail? Your personal appetite for risk will inform the decisions you make in selecting a voluntary disclosure program.
The Offshore Voluntary Disclosure Program or OVDP provides the least amount of risk to US taxpayers who wish to come into compliance with IRS FBAR reporting. The IRS will make its own determination as to whether the behavior of the US taxpayer constitutes “willful” or “non-willful” tax evasion conduct. In order to qualify for the streamlined option, the taxpayer must complete an exhaustive biographical background including all education, financial experiences, investment activities, travel, and strategy while explaining the reason for establishing each and every account or investment and the source of the funds used for that purpose. Remember, ignorance is not a defense under US tax laws.
The OVDP allows US taxpayers to avoid exposure to criminal tax evasion prosecution and the genuine risk of jail time. It provides the minimum amount of risk to US taxpayers who must disclose accounts, assets, income and investments that were previously not included on tax returns or FBARs. The OVDP requires the taxpayer to make a full, accurate and transparent disclosure including updated tax returns and FBARs for the required “look-back” period (6 to 8 years). However, once the taxpayer has complied they do not have to fear the IRS.
Many US taxpayers who thought they could escape the penalties and simply submit a streamlined application will be rejected by the IRS. Those taxpayers will not be able to re-apply through the OVDP program, and will face the full fury of the IRS including 50% penalties and the genuine risk of criminal prosecution and jail time.
The fact is the IRS has the information and will be able to tie it back to you personally. It isn’t a question of “IF” it is a question of “WHEN.”
If you are searching for an experienced San Diego OVDP attorney I invite you to call for a free and substantive consultation at 866-631-3470.