I hear it often – from dinner parties to fellow travelers to those who simply call for advice: “I didn’t know I needed to file an FBAR.” The next questions that follows are often: “This isn’t that big of a deal is it? Can I simply catch up on my past FBARs and avoid penalties?”
The IRS will not accept the position of a US taxpayer based upon “I didn’t know I needed to file an FBAR.” The published perspective of the IRS is that anyone who is sophisticated enough to have offshore bank accounts, real estate, investments or corporate ownership should be prudent enough to come up to speed on associated tax laws. In other words, ignorance is not an excuse to the IRS.
The IRS has also made it clear that US taxpayers may not simply file an FBAR or two, or update a line item on a previous return and attempt to use a “quiet disclosure” to solve the problem. This is one of the fastest potential routes to an IRS audit. The IRS demands that US taxpayers with offshore accounts and interests make a full, transparent one-time disclosure to the IRS, accompanied by updated FBARs and tax returns going back as far as 6 to 8 years.
US taxpayers have two programs to select from: the OVDP or “Offshore Voluntary Disclosure Program” or the Streamlined Domestic Offshore Procedures. The key issue is what the IRS labels “willful” or “non-willful” conduct on the part of the taxpayer. If you simply transposed a few numbers, or missed on account on one return you may be able to claim “non-willful” conduct and qualify for a streamlined application. Here’s the risk:
Once you select the Streamlined Domestic Offshore Procedures you cannot go back. You cannot change your mind and convert it to an OVDP application. You are putting all your chips on the fact that the IRS is going to give you a complete pass on your offshore activities. The reality is simply this: if they do not accept your streamlined application you will face criminal tax evasion prosecution, the real risk of actual jail time and draconian penalties up to 100% of the balance (or more) of your offshore accounts at their highest cumulative point at any time throughout a calendar year – each and every year.
If you haven’t come into compliance with FBAR reporting and IRS requirements regarding offshore accounts and assets we invite you to contact us for a free and substantive consultation at 866-631-3470.