The Internal Revenue Service (IRS) requires taxpayers to report certain foreign assets. This requirement has led to many questions, including what should you do if you have a foreign asset? Can you come into compliance without facing serious penalties? In short yes, you should come into compliance and yes, you can mitigate the risk of serious penalties.
How can I come into compliance with applicable U.S. tax laws? Taxpayers can come into compliance with applicable tax laws through use of the Offshore Voluntary Disclosure Program (OVDP). The program allows taxpayers to voluntarily come into compliance with reporting requirements. In exchange for voluntary compliance, the government will agree to cap penalties. Taxpayers that wish to take advantage of this program must act promptly. The government recently announced the OVDP will end in September.
The Delinquent Report of Foreign Bank Account Report (FBAR) Procedures is also an option. This option can come with a penalty so harsh it is often called “draconian” — $100,000 or 50 percent of the balance of the account in question, whichever is greater. An additional income tax, interest and negligence penalty can also apply. Additional options can include the Streamlined Procedures or Delinquent International Information Return Procedures.
How can I reduce the risk of serious penalties? Taking part in the options noted above can reduce the risk of penalties. Depending on the details of the situation, additional options may be available. An attorney experienced in offshore account reporting can review your accounts and provide guidance on the pros and cons of each option.
It is important to note that there is generally not a statute of limitations on tax returns that are not filed or that have fraudulent omissions of foreign accounts. As a result, the interest and other penalties can continue to grow until the accounts are in compliance. As such, it is wise to come into compliance as soon as possible. The attorneys at Goldburd McCone LLP can help.