The world is still unpacking the impact of FATCA and the IRS’ intent to track offshore bank accounts, investments and corporations. The result is continuing pressure on offshore investments and IRS FBAR reporting requirements including PFIC tax calculations and the continuing expansion of 50% penalties on specific institutions identified by the IRS as “helping US taxpayers to hide income or avoid taxes.” Generally speaking, if you now have, or have ever had more than $10,000 accumulated at any point in time in your offshore bank accounts or investments you should be preparing and filing the IRS FBAR report and associated forms.
There are two programs for coming into compliance with previously unreported offshore accounts and income: The Offshore Voluntary Disclosure Program or OVDP or the Streamlined Domestic (Foreign) Offshore procedures. The difference between these programs is the “willful or non-willful” intent of the taxpayer. It is important to note that in every Court case to date the IRS’ ability to make this determination on their own has defeated legal challenges in associated lawsuits. The IRS tends to assert that any omission is a “willful” attempt to evade taxes, and the resulting penalties, interest and potential for criminal prosecution leaves most US taxpayers in a challenging position.
Offshore investments and IRS FBAR reporting requirements are not the only challenges US taxpayers face. Passive Foreign Investment Company or PFIC determinations by the IRS are aggressively taxing investments in foreign mutual funds and investments. If a US taxpayer holds foreign investments or securities directly, the exposure is much more limited, and the experienced international tax attorneys and accountants at Allen Barron successfully defend clients from PFIC assertions by the IRS. When investments generate income from passive instruments such as rents, royalties or in many cases dividends derived from passive investments, the IRS responds with the highest marginal tax assessment available under US tax laws.
Investments in Foreign corporations may still provide tax advantages, as long as derived income is not distributed as long as the majority ownership of these corporations is “foreign.” As the percentage of ownership by a US person increases in a foreign corporation, the IRS becomes more aggressive. Intricate questions and calculations regarding “disregarded entities” and other previous investment strategies are a continuing source of IRS audit and Allen Barron’s battles with the agency.
The tax implications of offshore investments and IRS FBAR reporting requirements can be financially staggering. If you have offshore bank accounts or investment accounts, IRS FBAR compliance issues or have offshore foreign mutual funds or ownership in a foreign corporation you need the advice and counsel of Allen Barron tax attorneys and the supporting services of our accounting and tax preparation teams. We invite you to contact us for a free consultation at 866-631-3470.