We have been helping clients with offshore reporting issues for over 10 years. Here are some of the most commonly asked questions that we hear.
I reported all my taxable income but haven’t filed my FBARs. Do I need to enter into a program?
This is actually a circumstance where you may not need to. If you’ve paid taxes on unreported accounts, you do not necessarily enter into a program. You do need to submit delinquent FBAR reports according to the instructions, then attach a statement explaining why the reports are filed late (showing that you are non-willful) and an FBAR penalty abatement may be granted.
What are some of the civil penalties that might apply if I don’t come in under voluntary disclosure and the IRS examines me? How do they work?
- The FBAR penalty — for failing to file your FBAR is the most ominous and would be catastrophic if imposed. Generally, the civil FBAR penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. Example: Jeff had an unreported account in India that he opened in 2010. It was worth $100,000 in 2010 and $110,000 in 2011, and currently has $115,000 in it. When calculating the penalty, it would be 50% of 100,000 = $50,000 + 50% of $110,000 = $55,000 = $105,000. That would mean after the imposition of the penalty, Jeff would only have $10,000 left in this account. However, this amount would be taken as well for the additional penalties below! Frightening.
- Fraud penalties — Where an underpayment of tax, or a failure to file a tax return is due to fraud. The taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
- A penalty for failing to file a tax return — Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues, may be imposed. The penalty shall not exceed 25 percent.
- A penalty for failing to pay the amount of tax shown on the return — If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
- An accuracy-related penalty on underpayments — Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.
- If applicable, penalties for failing to file: Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; Form 3520-A, Information Return of Foreign Trust With a U.S. Owner; Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations; Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business; Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation; Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.
What are some of the criminal charges I might face if I don’t come in under voluntary disclosure and the IRS examines me?
Possible criminal charges related to tax returns include tax evasion, filing a false return, and failure to file an income tax return. Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties.
A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.
How long should the process take?
This is not official advice, only our experience. Plan on 12 months for those taking the standard penalty terms and 18 months for those opting out.
Once I enter into the program, will this haunt me forever? Will the IRS keep coming back to me?
No. It's actually the opposite — if you don't come clean you open yourself up to indefinite inspection for the IRS, and significant civil penalties along with possible criminal charges.
With over 10 years of experience in dealing with these programs, we know the ins and outs of how to best present your case to the IRS. Contact us to discuss your issue at 888-727-8796 or email@example.com. Any information you share is subject to the attorney client privilege.
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