What are the risks and penalties of not making a full offshore disclosure to the IRS? What happens if you have not included all of your offshore bank accounts, assets, investments, foreign trust and foreign corporate ownership interests to the IRS via FBAR or associated IRS forms? Does the IRS really intend to criminally prosecute those who have failed to come into compliance with FBAR reporting?
Yes, the IRS has made it quite clear that the failure to make a full, complete, accurate, transparent and voluntary disclosure to the IRS of all of your offshore activities for the past 6 to 8 years will result in exposure to penalties exceeding 100% or the account balances at their high-point each year, or $100,000 – which ever is greater. In addition, US taxpayers who fail to report all offshore interests and accounts face criminal prosecution for tax evasion.
If you have not included all of your offshore bank accounts, and all of your foreign investments, and all of your foreign assets on your tax returns and associated FBARs you cannot claim ignorance. The IRS has published guidelines which clearly state that any US taxpayer who is sophisticated enough to have offshore bank accounts or make offshore investments should be intelligent enough to investigate the tax ramifications, and reporting requirements to the IRS. Ignorance will not be an acceptable defense.
If you make a full offshore disclosure to the IRS through the Offshore Voluntary Disclosure Program or OVDP, you cut the penalties down to 27.5% for those institutions who are not on the IRS list of foreign banks and investment houses who willfully helped US taxpayers to evade taxation. OVDP applications which are accepted by the IRS further free the taxpayer from the risk of criminal tax exposure.
The risk of not coming into compliance and making a voluntary disclosure is quite simple:
The IRS has reciprocal data sharing agreements with tens of thousands of banking, investment and tax institutions worldwide. Most Swiss banks have signed on, and thousands of Cayman Island entities are providing information to the IRS. Once the IRS has account information, balances and transactions – all tied to your social security number or taxpayer ID – it is only a matter of months before they connect the dots and you face an IRS audit. The audit will result in draconian penalties and interest – in many cases more than the taxpayer has in all of their accumulated accounts. This is followed by a referral to the criminal investigation division of the IRS where the taxpayer will face criminal tax evasion charges and real jail time.
The time to come into compliance with the IRS and FBAR reporting is now. If you have been putting things off, it is only getting worse. If you are just learning about FBAR requirements and the IRS’ activities worldwide, you need to act swiftly. Contact the experienced international tax and FBAR attorneys at Allen Barron for a free and substantive consultation at 866-631-3470. Learn about the protections of attorney-client privilege and how this allows you to discuss your unique situation candidly without fear that the information you share will wind up in the hands of the IRS. Make a full offshore disclosure to the IRS, fave a huge amount in penalties and interest, avoid criminal prosecution, and move forward with your financial life.