If you have offshore financial accounts, you are required to file a Report of Foreign Bank and Financial Accounts (FBAR). If you failed to file this report, then you may face criminal prosecution and penalties based on the balance of the account during each year it went unreported. In one recent case, an individual with unreported offshore accounts actually faced penalties that exceeded the total value of the overseas account.
The Internal Revenue Service has a revised their Offshore Voluntary Disclosure Program (OVDP), which encourages taxpayers with undeclared overseas accounts to come forward and report the accounts. Participation in the OVDP can reduce your penalties and likely avoid being prosecuted.
To determine if participation in OVDP is a wise choice based on your specific circumstances, it is advisable to consult with a lawyer experienced in making IRS voluntary disclosures. Your attorney can help you to decide if disclosure makes sense and can assist you in taking the required steps to join the right part of the program.
Is OVDP Participation Right for You?
Whether OVDP participation is the best option for you will depend upon whether your failure to report your offshore accounts is considered willful or not. Willful violators face criminal prosecution under a number of different statutes including 31 USC 5322(a), as well as 26 USC sections 7210 and 7206(1).
Under 31 USC 5322(a), you could face up to five years of jail time and fines up to $100,000 for each willful failure to file an FBAR. Under 26 USC 7206(1), you may face prosecution for willfully submitting a tax return you didn’t believe was accurate and complete on every material issue, which could apply if you willfully filed to make discloses on your tax return. Likewise, under 26 USC 7201, you could be prosecuted for willful, intentional understatement of taxes due if your foreign account or other assets produced income. Intentional evasion means you took an affirmative action, like keeping separate books or knowingly hiding information, in order to defraud or deceive the government.
The IRS has a longstanding policy of not prosecuting taxpayers criminally if the taxpayer makes a voluntary disclosure. As such, if you willfully failed to report your offshore accounts, OVDP participation may help you to avoid the risk of a criminal prosecution. However, if you wish to participate in OVDP and you committed a willful violation, you should act quickly.
The Department of Justice is cracking down on offshore banks and if your bank comes under investigation before you become part of OVDP then you will face more serious penalties. Penalties for willful violators are also scheduled to increase. If you submit a preclearance report prior to August 4, 2014, you can avoid the higher penalties through your participation in OVDP.
Non-willful violators are not necessarily at high risk of facing criminal prosecution, but could potentially still face high penalties if their offshore accounts are identified before they come forward to participate in OVDP. The range of penalties for non-willful failure to file varies depending on your facts and circumstances.
A skilled IRS voluntary disclosure lawyer can help both willful and non-willful violators with undeclared offshore accounts. Contact a Thorn Law Group attorney today for advice on whether OVDP is right for you.
For a consultation, contact Kevin E. Thorn, Managing Partner, at firstname.lastname@example.org or (617) 692-2989