If you did not file all of your required Reports of Foreign Bank and Financial Accounts and you did not otherwise comply with U.S. tax rules in connection with offshore accounts, you face a substantial risk of civil penalties and even criminal prosecution. The IRS is aggressively fighting offshore tax evasion, and many foreign banks are helping the IRS by providing them with accountholder information in exchange for avoiding criminal penalties for helping American to evade their taxes.
There are programs that can limit the consequences you face for your past failure to comply with U.S. tax laws. Participation in an Offshore Voluntary Disclosure Program (OVDP) is one of your options. The IRS has also created a streamlined filing procedure for non-willful violators who can limit their penalties for undisclosed foreign accounts by coming forward voluntarily, filing amended tax returns and FBARs, and paying back taxes, penalties and fines.
If you are considering making a streamlined filing because you're worried about the IRS finding your offshore accounts and you want to be proactive in limiting your losses, you should speak with a Boston tax attorney before you take action. There could be substantial risks associated with your decision to make a streamlined filing and an experienced attorney can help you to decide if this is the best course of action for you.
Should You Choose Streamlined Filing?
Streamlined filing is open only to non-willful violators, so to be eligible for the benefits of this program – including the limits on penalties – you must attest under penalty of perjury that you didn't intentionally fail to follow tax rules. If you were negligent or didn't know or understand the rules, then streamlined filing is supposed to protect you from very serious and substantial penalties.
The problem is, the IRS won't just take your word for it that you didn't willfully violate the rules. The IRS looks for evidence that you acted intentionally to evade taxes. There are a number of red flags that could tip the IRS off that you were a willful violator, including holding your account in the name of an offshore entity like a foreign foundation or corporation; moving your money around to different offshore banks; taking all your money out of the account in cash; and meeting with foreign bank representatives who were visiting the United States.
If the IRS decides you are a willful violator based on their review of your information, the limited penalties that streamlined filing was supposed to provide are gone. You can face the full civil and criminal penalties that result from your allegedly intentional failure to evade tax rules, and you could even be criminally prosecuted for any false statements that U.S. authorities claim you made on your streamlined disclosure forms. The IRS will have all the information you provided to them to make a case against you.
Because of the serious risks of streamlined filing, you should make certain you talk with Kevin Thorn, a Boston tax attorney, about whether streamlined filing is a good idea and about whether there are other options that may be a better way to resolve your tax issues.