In recent years, the U.S. government has taken numerous steps to crack-down on foreign account holders and possible acts of tax evasion. With the passage and enaction of the Foreign Account Tax Compliance Act, U.S. citizens with foreign financial assets and accounts valued at $50,000 or more must take steps to report such assets to the Internal Revenue Service.
While many U.S. citizens with foreign accounts and assets have fallen in line and complied with IRS filing requirements, many have not. Failure to comply with FATCA rules, or any tax laws for that matter, can result in an individual facing hefty fines, penalties and even criminal charges For those individuals who have been dodging FATCA and who want to get right with the IRS, the agency offers several options.
The Offshore Voluntary Disclosure Program and the Domestic or Foreign Streamlined program are two methods by which delinquent FATCA compliers can report foreign assets. Unfortunately, when it comes to the IRS, attempting to do the right thing can come at a hefty cost.
The OVDP requires foreign account and/or asset holders to provide eight years of amended tax returns and Reports of Foreign Bank and Financial Accounts or FBARs. Additionally, individuals who opt to participate in the OVDP are subject to a 20 percent penalty on the total amount owed as well as between a 27 and 50 percent penalty on the “highest offshore account balance.”
Based on the considerable penalties, the costs associated with participation in the OVDP are significant. Another option for U.S. citizens who are delinquent with FATCA filing requirements is the IRS’ Streamlined program. However, while an individual is protected from prosecution under the OVDP, individuals who opt to participate in the Streamlined program may face criminal charges if the IRS determines that he or she willfully took steps to evade compliance.
The Streamline program requires three years of tax returns and six of FBARs. The big benefit, provided an individual’s actions were non-willful or unintentional in nature, is that there are no penalties for U.S. citizens living abroad with foreign accounts and assets and only a five percent penalty for those living in the U.S.
Source: Forbes, “Offshore Accounts? Choose OVDP Or Streamlined Despite FATCA,” Robert W. Wood, June 30, 2015