The Internal Revenue Service has developed amnesty programs to encourage taxpayers to come forward and voluntarily report offshore accounts that they may have failed to file forms on in the past. All United States citizens, including people living abroad, are required to file the Report of Foreign Bank and Financial Accounts (FBAR) annually or they face significant financial penalties. The Offshore Voluntary Disclosure Program (OVDP) makes it possible for people who did not file the FBAR to come forward and alert the IRS to their accounts, thus avoiding the risk of criminal prosecution and limiting penalties.
Some taxpayers with offshore accounts are eligible for Streamlined Foreign Offshore Procedures. Unfortunately, early evidence indicates that very few people are actually able to take advantage of the streamlined procedure. In fact, some taxpayers attempting to enter the streamlined program have found themselves unable to take advantage of amnesty and facing very severe penalties.
Because of the risks, it is essential to get help from a IRS voluntary disclosure lawyer before you take any action on reporting accounts to the IRS.
Limits on Streamlined OVDP Program
Eligibility for Streamlined Foreign Offshore Procedures is very limited. You must: Meet non-residency requirements, and have failed to report income from and pay tax on foreign assets. Also, you must have failed to file a Report of Foreign Bank and Financial Accounts as required, and have not engaged in willful conduct with respect to the failures.
If you meet the criteria, there are many procedures you must follow exactly to comply with the OVDP program. According to the IRS, “failure to comply with any of the specific IRS requirements “will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.”
If you are not approved for the Streamlined Procedure, you will lose the benefits including the reduced penalties and the ability to avoid potential criminal prosecution. You may become ineligible for amnesty through the OVDP and you could face significant penalties including:
- A penalty for failing to file FBARs. The civil penalty may be the greater of $100,000 or 50 percent of the total balance of the foreign financial account for each violation.
- A penalty for failing to report interest (Form 8928). The penalty for a failure to file each one of these forms is $10,000, and an additional $10,000 per month starting 90 days after you are notified of the delinquency, up to a maximum penalty of $50,000.
These are just some of the myriad penalties that you could face. In some cases, penalties have exceeded the value of the offshore account. It is essential to do everything possible to ensure your eligibility to participate in the streamlined procedure, especially as early accounts limit that it is difficult to do so. Contact a IRS voluntary disclosure attorney at Thorn Law Group for help.