A storm is on the horizon for those who fail to report offshore financial activity to the IRS. We are often asked by clients, especially foreign nationals who live and work here in the San Diego area, if they should report previous offshore income to the IRS through an FBAR voluntary disclosure program. In some cases, income may have been reported to a different sovereign tax agency (their home country) but not to the IRS. This question is often followed by a core belief of many citizens and resident US taxpayers:
“How is the IRS going to find out about me, personally?”
Many believe that the IRS will never worry about or discover offshore activity and tie it back to someone living and working in the US. This assumption is based upon the idea that the IRS is only interested in “big fish.” This is based upon a lack of awareness as to the extent with which foreign banks, investment houses and financial institutions are actively providing this information directly to the IRS. The global impact of FATCA over the past few years has not quite fully translated to individual taxpayers in the form of an IRS audit for most US taxpayers. We expect the IRS to begin these efforts in an immediate time frame.
The IRS has moved many internal resources to focus upon the offshore activities of US taxpayers. John Koskinen, the Commissioner of the IRS and other IRS leadership have repeatedly stated the pursuit of offshore tax revenue is the highest priority of the IRS. Data transfers from offshore financial institutions and sovereign tax authorities began in mid-2015. The IRS will mine this information for specifics related to individual US taxpayers. The next step for the IRS is simple: compare the information provided by foreign sources to the returns of US taxpayers. This process is under way. It is also important to note that the failure to disclose offshore information, income and accounts to the IRS is not protected by the typical 3 year statute of limitations for IRS audits. Presently, ongoing court cases are focused upon activities in 2008 and 2009. It is only a matter of time before the IRS finishes its internal analysis of your tax returns in comparison to the information they receive from your offshore banks, financial institutions and sovereign tax authorities.
To date, more than 100 nations and tens of thousands of offshore banks and institutions have agreed to provide the IRS with this information. It is also important to note that the IRS is providing like information in return. The impact of FATCA and the “Panama Papers” cannot be overstated. This has changed the ability of normal US taxpayers to hide financial activity around the world from the IRS. The agency has provided two FBAR voluntary disclosure programs for US taxpayers to come into compliance: OVDP (Offshore Voluntary Disclosure Program) and the Streamlined Domestic (Foreign) Offshore Procedures. The agency has already begun publicly hinting that these programs may soon be retired, leaving US taxpayers to face the full penalty and criminal consequences for failing to come into compliance with IRS tax and FBAR reporting.
The time to come into compliance with IRS FBAR compliance is now, before these disclosure programs are closed forever. We invite you to contact the experienced San Diego IRS international tax attorneys at Allen Barron for a free consultation at 866-631-3470. We will discuss the FBAR voluntary disclosure options and your unique circumstances. Our clients are protected by the attorney-client privilege allowing us to fully examine your exposure and risk. The risk all US taxpayers face for failing to fully, accurately and transparently reporting offshore activity is harsh:
50% of the highest combined value of all offshore accounts and assets at the highest point in each tax year, or $100,000 per omission, whichever is higher. The IRS further reminds US taxpayers that the failure to report this information is a criminal offense punishable by additional fines and a prison sentence. The real question a foreign national or US citizen faces is simply this:
Is it worth that risk?
A storm is on the horizon. Are you prepared?