In yesterday's blog article, we wrote about the United States Government Accountability Office (GAO) OVDP report, and discussed the strange fact that the IRS has done little to educate American citizens who may work or have worked overseas and maintain open bank accounts, brokerage accounts, or insurance accounts.
The other shoe that dropped is the fact that yes, the IRS used the precise methodology we predicted over a year ago to detect those who filed so-called "soft" or "quiet" disclosures. The IRS says they have identified 10,000 soft disclosures and will begin prosecuting. The IRS used the 2009 Offshore Voluntary Disclosure Program (OVDP) data to identify bank names and account locations to find additional noncompliance. The intent of the IRS was to gather information on those not disclosing. The GAO report indicated that the IRS has done little to educate recent immigrants about their tax filing requirements regarding accounts they may have had from their country of origin.
Since the birth of OVDP, some accountants and attorneys without a tax specialization have erroneously recommended that their clients pursue what is known as a soft disclosure. A soft disclosure is made when a taxpayer amends his past tax returns and files his delinquent FBARs to avoid further IRS scrutiny.
We’ve been warning taxpayers of the perils of filing soft disclosures. Pursuant to the March United States Government Accountability Office Report to congress, the IRS has agreed to the following recommendations:
(1) Use offshore data to identify and educate taxpayers who might not be aware of their reporting requirements;
(2) Explore options for employing a methodology to more effectively detect and pursue quiet disclosures and implement the best option; and
(3) Analyze first-time offshore account reporting trends to identify possible attempts to circumvent monies owed and take action to help ensure compliance. http://www.gao.gov/assets/660/653369.pdf
What all this means is that while the IRS will put forth a stronger effort to educate taxpayers who have failed to disclose foreign accounts, it does not absolve non-filers and those attempting or have made soft disclosures. Taxpayers who have made soft disclosures still may be subject to 75% civil fraud penalties which have no statute of limitations or the 50% FBAR penalties for every year of noncompliance. Even if only the 50% FBAR penalties were applied, this penalty when calculated for every year of noncompliance can easily exceed the value of the account and even require the delinquent taxpayer to use some of their compliant domestic assets to pay this steep tax bill.
The March GAO report indicates that the IRS is enhancing means of identifying soft disclosures and rendering said taxpayers compliant with respect to their overseas accounts. For those who have made soft disclosures or have been contemplating making a soft disclosure by amending past tax returns and filing delinquent FBARs, it is important to first contact a tax attorney to discuss OVDP and the different options available.
If you're concerned about disclosing, contact us for a complimentary confidential consultation.
