Foreign Bank Account Report Mistakes
If an American taxpayer has a financial interest in, or signature authority over, a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain statutory thresholds, that taxpayer may be required to report the account annually to the Department of Treasury, using a Foreign Bank Account Report (FBAR). Failure to comply brings severe penalties: a civil penalty of as much as 50 percent of the account, as well as possible criminal charges for tax evasion, filing a false return, and/or failure to file an income tax return. For many years, however, the filing requirement was relatively unknown and many taxpayers inadvertently violated the law.
Clean the Slate Regarding Your Foreign Bank Account Report
Beginning in 2009, the IRS adopted offshore programs that have provided incentives for taxpayers to come forward, disclose their offshore accounts, and pay delinquent taxes, interest and penalties. Over the years, these Offshore Voluntary Disclosure Programs (OVDPs) have pulled in almost $10 billion from taxpayer participants.
Step-by-Step Procedure to Comply with OVD Program
While the specific procedure can vary a bit from taxpayer to taxpayer, to participate in the OVD Program, the taxpayer must:
- File a Pre-Clearance Request with the IRS. The IRS reviews the request and determines if the taxpayer is cleared to make a voluntary disclosure. Getting such clearance does not, however, assure that the taxpayer will be accepted into the OVD Program.
- Submit an Offshore Voluntary Disclosure Letter. After the pre-clearance has been received from the IRS, the taxpayer submits an Offshore Voluntary Disclosure Letter (Form 14457), which must be reviewed and approved by the IRS.
- File Full Voluntary Disclosure Statement.
- Execute a final Closing Agreement with the IRS. Once the IRS has agreed to the accuracy of the information you have supplied and once it has certified the level of back taxes, interest and civil penalties owed, the taxpayer and IRS enter into a closing agreement.
Other OVDP/FBAR Requirements
As part of the procedure outlined above, the taxpayer is required to:
- File all tax and information returns (and/or amendments)—including a Foreign Bank Account Report—for the most recent eight years
- Pay all taxes, interest, and a 20 percent or 40 percent accuracy-related penalty on underpayments
- Pay a 27.5 percent penalty on the highest balance of your offshore assets for the period covered by the voluntary disclosure
Be aware of the fact that the 27.5 percent penalty has been increased to 50 percent in cases where the U.S. government has undertaken certain publicly disclosed enforcement actions against the financial institution holding your account.
Expensive, But Consider the Alternative
The OVDP may seem expensive, but not compared to the sledgehammer that the IRS can wield against you, getting a clean slate may be worth it. The procedure is complex and not for the faint-hearted. It can take up to two years to move through the procedure successfully. Anyone contemplating a voluntary disclosure should seek the assistance of a skilled voluntary disclosure attorney.
If you haven’t filed a Foreign Bank Account Report for one or more tax years, the tax amnesty lawyers at Mackay, Caswell & Callahan, P.C. have helped many clients resolve tax issues, including those related to correcting an unfiled FBAR. With more than 30 years of experience in assisting taxpayers with all sorts of tax-related issues, we can help you review your own case and understand your options. We can help you determine if the OVD Program is your best bet to come into full compliance with U.S. tax laws and regulations. We have offices in Albany, New York City, Rochester, Syracuse, Utica and Watertown. Don’t delay; we have a New York tax attorney ready to help you with your tax issues.