The IRS is working hard to ensure that Americans are unable to “hide” assets overseas. While failing to disclose assets located overseas has always been a violation of the tax code, in recent years the IRS has mounted a serious effort to ensure that all foreign assets are disclosed—and taxed, when applicable.
This is frustrating because we find that most of our clients are not trying to "hide" anything, or evade paying taxes. They simply didn't know that there were forms they had to fill out telling the IRS about money they have in offshore accounts!
Ultimately, taxpayers and businesses with undisclosed assets overseas face two choices: come clean now, or face potentially calamitous penalties down in the future. Forbes.com explains:
The penalties for failure to file an FBAR are worse than tax penalties. Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation—and each year you didn’t file is a separate violation.
Criminal penalties for FBAR violations are even more frightening, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law (such as tax law, which it often will) the penalties are increased to $500,000 in fines and/or 10 years of imprisonment. Many violent felonies are punished less harshly.
Moreover, the assessment of a civil penalty does not preclude criminal penalties or prosecution. Fortunately, one IRS official has said that the IRS may decide to simply issue a warning letter rather than penalties. The goal is compliance with the rules, the IRS suggests, not penalties.
In assessing whether penalties are to be applied, especially willfulness, the IRS looks at such issues as inheritance, how other accounts are treated, etc."
Currently, the IRS is offering taxpayers a chance to come clean and face relatively minor penalties. Known as the Offshore Voluntary Disclosure Program, this program gives taxpayers the chance to disclose their assets and pay a penalty.
While it is always unpleasant to write a check to the IRS, it is much better than having the IRS track you down and levy far more severe penalties. The bottom line is that as technology improves and countries like Switzerland begin to cooperate more fully with the IRS, it will become far more difficult to conceal assets offshore.
If you have offshore accounts that need to be reported, contact us. We can help. Call us at 888-727-8796 or email firstname.lastname@example.org.