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Got foreign accounts? IRS has new reporting requirements.

The Internal Revenue Service (IRS) recently announced new reporting requirements for United States taxpayers with foreign accounts. The change is in part due to the sunset of the offshore voluntary disclosures program (OVDP).

Who can benefit from the new program? The agency explains the program is designed to offer those who face potential criminal charges for willfully failing to report foreign assets to voluntarily disclose these assets. In exchange, the government will mitigate the risk of penalties.

How does the program work? The program begins with a preclearance request with Form 14457. The IRS’ Criminal Investigation will review the request and determine eligibility. If approved, the information is forwarded to the Large Business & International Austin unit for preparation and then to the appropriate Business Operating Division and Exam for the civil examination.

What is different about this program? As noted in a recent discussion published by the National Law Review, this program offers a clarity that was lacking in previous disclosure programs. Another notable change: it covers a shorter time period. Previous disclosure programs generally included an eight-year look back period. This new program uses a six-year disclosure period.

Not all changes are beneficial. The agency also reports increased penalties.

What are the potential penalties? The IRS states it will require “full payment of all taxes, interest and penalties for the disclosure period.” For those the IRS determines fraudulently failed to file tax returns, penalties could be up to 75 percent. This is significantly higher than the previous program, which generally applied a 20 percent penalty fee.

It is important to note the disclosure program is not a get out of jail free card. Those who need to come into compliance with tax laws are wise to seek legal counsel. The attorneys at Goldburd McCone can review your situation and discuss your options. It is important to understand the full impact of disclosure and to choose the right option for your situation. Other disclosure programs may offer a better solution for your tax compliance needs.

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