The central issue relating to the Foreign Account Tax Compliance Act (FATCA) and the associated Foreign Bank and Financial Account Report (FBAR) is whether conduct on the part of the US taxpayer is considered to be a willful or non-willful attempt to evade US taxes.
The IRS provided options for US taxpayers to come into compliance with offshore account and asset reporting through the Offshore Voluntary Disclosure Program OVDP (or Initiative, OVDI). There are a few options within OVDP, including a Streamlined Domestic Offshore Procedures program which allow US taxpayers to select the best option based upon the following:
- Criminal Tax Evasion Exposure
- Willful versus Non-Willful Conduct
- Penalties and Interest
Using secreted offshore bank accounts, assets and investments to under-report US income and evade taxes willfully is a criminal offense punishable by real jail time. The IRS offered to release US taxpayers from their exposure to criminal exposure if they make a full, transparent and complete disclosure of all foreign assets, accounts and investments. There are steep penalties and interest associated with these accounts over a lookback period of up to six years (or longer).
The streamlined option substantially reduced the exposure to penalties and interest, representing a huge savings for most taxpayers – with one caveat: the failure to report offshore accounts, asset or income on the part of the US taxpayer had to be non-willful. Many US taxpayers have filed a streamlined application hoping against hope that the IRS will allow them a form of amnesty, while avoiding a huge tax bill.
This strategy is highly risky at best, and fraught with peril for many. What happens when one of your banks winds up on the IRS’ list of banks who have purposefully helped US taxpayers to avoid taxes? Those with accounts at these banks (currently more than 100 internationally and quickly growing) face immediate 50% penalties. The question the IRS has yet to answer is:
If a US taxpayer filed under the streamlined option, and they have at least one bank on the IRS’ list of mandatory penalty banking violators, will the taxpayer’s activities be therefore ruled as “willful”.
If this is the case, then the IRS could simply reject the taxpayers application to the streamlined program, and hit them with the highest penalties (100%), and the real risk of criminal tax evasion charges.
These are serious issues, carrying steep penalties and the genuine risk of jail time for many US taxpayers. If you have any offshore bank accounts, investments or assets you should contact the experienced, proven and trustworthy attorneys and tax advisors at Allen Barron for a free consultation at 866-631-3470.
Learn about the protections of the “attorney-client privilege” and have an honest, open and forthright conversation about your genuine exposure, risk and strategic options.