Foreign Bank Account Reporting – How to Avoid Excessive Penalties

Since the UBS tax evasion controversy that picked up in 2008, the federal government began looking for all possible ways to increase their tax revenue. Nowadays, the prime targets for the IRS were the U.S. taxpayers with undeclared offshore accounts. They set out to find and prosecute the non-compliant individuals with hefty FBAR penalties. The IRS has decided to target the wealthy taxpayers by scrutinizing their returns, just hoping to find someone with unreported offshore income.

The severity of FBAR penalties
It is absolutely legal for US citizens and residents to hold foreign bank accounts. Individuals have offshore accounts for a variety of legitimate reasons, including those that have family in a foreign country, those accounts that are inherited and those who want to facilitate transactions for business purpose. These people are usually dual citizens who play an important role in the economic growth of our country. But the sad truth is, the U.S. asserts universal taxation legal power over all income of an individual, regardless of the location of the paying source yielding the income or revenue.

FBAR penalties are assessed per account value; it is not calculated on your income or per unfiled FBAR. Further, the penalties will be assessed for each account for each year there is a violation that could end up with extreme disproportionate penalties. As an example, if you have $600,000 in your offshore account, the IRS can impose $300,000 as penalties - for just one year. For two years, the willful FBAR penalties could eat up your entire amount on the bank account. You see, the IRS will not necessarily have to stop here. They could potentially calculate penalties for 6 or more years that can put you in a position of negative equity.

What are your options to avoid FBAR penalties?
The following are some of the options for people qualifying to disclose under the voluntary disclosure program.

Standard OVDP with 27.5% penalty: Intended for people with some bad facts on their side, the standard 27.5 percent offshore penalty ("in-lieu-of-FBAR penalties") is applied to the taxpayers' "offshore assets" at the time where they were highest in value during the OVDP period.

50% Offshore Penalty: This applies to taxpayers with offshore accounts where public disclosure has been already made on the financial institution. The 50% Offshore Penalty will be evaluated on the highest aggregate value during the eight years covered under the OVDP.

Domestic Streamlined OVDP: This is for only to non-willful taxpayers who are living in the US and are willing to pay a penalty equal to 5% of the highest year-end account balance.

Streamlined OVDP offshore: Taxpayers residing outside the United States would be eligible for a 0% offshore penalty as long as they meet the requirements.

Voluntary Disclosure: In case your OVDP is turned down as you are under investigation, it is advisable to try to enter into a regular IRS voluntary disclosure program or at the minimum get ready for trail.

FBAR only: The IRS may not impose a penalty for taxpayers who didn't file missing FBARs if there are no unreported tax liabilities on their foreign income.

OVDP Opt-out: A taxpayer may elect to "opt out" if he/she disagree with the application of offshore penalty or other settlement structure of 2014 OVDP and want to have their case handled under normal audit process. A FBAR warning letter, Letter 3800 or non-willful penalty is the ultimate goal of any opt-out.

Being under investigation for unreported foreign account
If you are under audit for having significant unreported offshore income or at high risk for criminal prosecution, you need to get legal protection by hiring a tax attorney specialized in handling FBAR cases. Criminal penalties for FBAR violators include a fine of $250,000 along with 5 years of imprisonment. Moreover, the assessment of a civil penalty will be done separately in addition to criminal FBAR penalties.

Either way, get an expert opinion from an experienced FBAR attorney who can help you determine if are at high risk for criminal prosecution. They will help in bringing your offshore account into IRS compliance and minimize your criminal exposure to the IRS.

Tax help for IRS FBAR Problem – Attorney and Tax Resolution

We know exactly how you must be feeling. You perhaps just discovered about this IRS FBAR form and your surprise is well-justified: The United States of America stands out as the only country that tax its people for their world-wide income. Even worse, the IRS provides no exceptions for expatriates, dual citizens, resident aliens, and H-1B VISA holders. As a matter of fact, the only other nation that taxes income in the same way is North Korea!

So if you're new, or not so new, to the United States, your failure to file FBARs and report your overseas income is completely understandable.

Complicated FBAR form
In our IRS FBAR blog site - which is actually read by thousands of tax payers and tax experts - we've written at length about how complex the FBAR guidelines are. Not only you are expected to be familiar with the IRS’ really weird taxation program, you're also expected to understand the requirements of the tricky IRS FBAR form. The FBAR format changes each and every year, and yet you're still expected to fully understand your obligations.

Even worse, it's hard to get someone qualified to assist you. We have seen a lot of tax payers who thought that they were completing it in the correct way and found out they weren’t.

It is not just the FBAR form all you have to worry about
Partnerships, Foreign Corporations, and Foreign Trusts all have got their FBAR equivalent forms with corresponding penalty charges. Forms that include Form 5471, Form 5472, Form 8891, and Form 3250 also have complex filing requirements and substantial penalties if it is not done properly.

FBAR is extremely specialized
This system is not really fair. You have to understand that. You also want an IRS FBAR lawyer, working with you, who knows precisely how you are feeling. You require a law firm that has successfully closed a lot of OVDP and other FBAR cases.

Regrettably, we have seen FBAR cases mishandled by lawyers and Certified Public Accountants who “dabbled” in FBAR problems. We are regularly called in to solve issues that never ever should have occurred. It is best, nevertheless, when an FBAR case is handled correctly in the first place.

Do you need a highly qualified FBAR Attorney?
At IRSMedic: We are a specialized tax resolution firm, having our very own dedicated off-shore disclosure and FBAR penalty department. Since the very first Offshore Voluntary Disclosure Initiative in the year 2009, our firm has helped several thousand American taxpayers deal with their un-filed FBARs, unfiled tax returns, unreported income and FBAR penalty abatement.

We have helped tax payers from all over the nation, with plenty of clients from Dallas, Houston, San Jose, San Francisco, Connecticut, Los Angeles, New Jersey, Atlanta, San Diego, Miami, Washington DC, and New York.

Our firm has helped expatriates and dual citizens with their US taxes from the United Kingdom, Belgium, Australia, New Zealand, France, Switzerland, Ireland Spain, Dubai, Iran, Germany, Italy, Brazil, Panama, Mexico, Argentina, India, Singapore, Canada, Hong Kong, China, Japan, South Korea and Thailand.

The excellent news: You can certainly put this behind you
Professional FBAR legal representation is actually difficult to find. We know you like to get the FBAR problems right behind you forever! You would like to move up with your life rather than carry on living in fear of what the Internal Revenue Service is planning to do. The great news is our firm has helped others in very similar scenarios and we could also help you personally.

5 Things You Didn’t Know About FBAR Penalty Negotiations

Recently, the FBAR is in the spotlight since the IRS is having a new focus on the FBAR penalty enforcement actions. There are few important things that you have to keep in mind when negotiating FBAR penalties. The following paragraphs will explain them in a detailed manner.

1. FBAR penalties are staggering
The penalty can be draconian for taxpayers who have foreign accounts and have not reported it to the IRS. Higher the amount you have in overseas accounts, bigger will be the penalty. When compared with other IRS penalties, FBAR penalties can create huge risks to your financial well being. Therefore you must take this very seriously.

2. The two different kinds of FBAR penalties
The “ugly” FBAR penalty is $10,000. This penalty is assessed if the IRS thinks that you did not deliberately neglect to file an FBAR. And worse, there isn't anything to stop the IRS from assessing this innocent mistake penalty several times. If you have 4 unreported offshore accounts, the IRS can penalize you $40,000 a year. This is definitely outrage to us, but this is just what the law says.

The next type, "disastrous" penalty will be 50% of the offshore account value and this is applicable if it is an intentional avoidance of filing the FBAR. And similar to the “ugly“ FBAR penalty, it too can be assessed several times. This kind of multiple assessments by the IRS can wipe out you entire savings in matter of seconds.

3. The Internal Revenue Service doesn’t have to prove “willful neglect”
You are obligated to pay whatever penalty the IRS puts upon you. They might simply assume the "disastrous” penalty for your case and there isn't any necessity for the IRS to prove willfulness. It will be the taxpayers who bear the big burden of proving that their failure to comply was as a result of reasonable cause and not from “willful neglect”.

4. Appealing to a higher authority
You could file a suit in district court but before that, you need to exhaust your administrative remedies within the IRS. Or alternatively, you could pay out all the taxes before filing a suit for a refund. We strongly advise you to exhaust administrative remedies that are available in the IRS appeals process as this has lots of advantages. First, it's not necessary to pay any penalty till the process end. Second, you can find remedies from the IRS appellate process itself, making tax court unnecessary. In case, if you're not able to find a solution inside the IRS administrative remedies, a tax lawyer can find a receptive audience in IRS counsel and do negotiations with them. So without going to court trial, the FBAR penalties can be lowered.     

5. The OVDP route
Earlier, people made use of Voluntary Disclosure Programs largely to avoid facing criminal prosecutions. The current OVDP/ FBAR Amnesty is there to help people by creating a standardized format for dealing with the threat of disastrous or ugly FBAR penalty charges. This is why it is important to make use of the OVDP to negotiate your FBAR penalties.

Initially by going through the OVDI, the review will be much more favorable to you during the discussion of your “FBAR reasonable cause" position. But outside the OVDP, the IRS does not treat people as favorably as those who make themselves visible under the OVDP. No matter whether you made an innocent mistake or made an unadvised “quiet” or “soft” disclosure, the ground will be much less sturdy when it is outside the OVDP.

Though criminal charges can be a threat to an individual, an IRS civil audit can do even more much damage to a taxpayer's financial well-being. While you may avoid facing prison time, these horrific FBAR penalties can easily wipe out your entire wealth as well. Within the OVDP, penalty charges are capped. You will never have to pay more than one 27.5% FBAR equivalent penalty.

Frequently Asked Questions about IRS OVDP Opt-out Process

The most confusing aspect of the current OVDP is definitely the “opt-out” procedure where several unanswered questions remain among the individuals. Below are the answers to some of the commonly asked questions about the OVDI opt-out procedure.

1. Will I be criminally charged by the IRS if I opt-out of the OVDI?

No, not really. The key reason why there is confusion is the fact that when you opt-out of the OVDP, you actually aren't opting out of the OVDP. Yes, that is correct.

Opting out of the OVDP is not going to increase the risk of criminal prosecution, because what you opt-out of is the standard penalty cap which varies according to the highest balance in the offshore accounts. For the majority of taxpayers, the penalty will be 27.5% of the highest aggregate value in overseas accounts however, you may become eligible for 12.5% penalty if the highest balance is less than $75,000 or if you meet certain conditions. Therefore you just opt out of the penalty cap and never out of your entire OVDP.

2. Will I have to pay additional penalty if I opt out?

Yes! There is a possibility. But we haven't come across it yet. The Internal Revenue Service has told us, they don't want to punish anybody who using the OVDP. These are definitely, in the IRS’ view, the people doing “the right thing.” Some might be charged more, not because of the OVDI, but only if the individual gives the IRS a hard time.

3. Exactly how many opt-out cases are successful?

Compared to other available options, the opt-out is a pretty new program, at least in IRS years. Right until now, not that many successful opt-outs has taken place for the ones that was submitted in 2012. Since the IRS is quite interested in centralizing the opt-out decision, delay in approval looks inevitable. So there's no big surprise to see several cases in queue for getting 5% penalty approval.

The Internal Revenue Service miscalculated regarding who is going to mainly make use of the OVDP program. The IRS overestimated the number of intentional tax evaders while underestimated the innocent filers since they become the big users of the opt-out program. This seems to have further slowed the whole process. 

4. Can I appeal against OVDP penalty?

Yes, you can. Inside the OVDP program, an opt-out gives several appeal rights for you. However outside the program, the IRS can charge multiple 50% penalties which could eliminate your entire assets within seconds. This has occurred before and the IRS agency threatens to do a lot more.

5. For small cases, OVDI appears to be overkill. Why don’t I simply carry out a 'soft’ disclosure?

The final decision to enter into this program is entirely yours. However do not forget that there is a possible danger of FBAR review if you don't want to get involved in this program. There might not be felony charges (although it can be carried out) however, if caught in a FBAR audit, the results could be disastrous.

A 'soft’ or ‘quiet’ disclosure to us, is not a sensible option. Using its vast data collecting tools, the IRS already has identified about 10,000 persons and businesses that have made soft disclosures. The IRS says they will track down all of those who have made 'quiet' disclosure. Sometimes, we might feel the law is unfair. Though it is hard to accept, the best thing to do right now is to simply follow the rules.

6. If I made a ‘soft’ disclosure can I still make use of the OVDI?

Indeed, you can and you should. To repeat, the IRS has discovered 10,000 people who they suspect of making a 'quiet' disclosure. And these numbers belong just to the accounts over $1,000,000. It will become a lot higher if they start to look into the accounts with balance under $1,000,000.

7. How much the whole process will cost me?

Making a voluntary disclosure can help you to become tax complaint, but to take a best decision, you must know about how much cost involved to go through the entire OVDP process. And that includes accounting and lawyer fees. Our law firm follows the flat fee model for our different tax resolution services. While we can guarantee our flat fee, we can’t keep on top of the IRS. All we can actually do is guiding you to take right steps at the right time. If you have reasonable cause, the prospect of receiving favorable result is much higher.

How an FBAR Attorney Can Solve Your Offshore Bank Account Problems

Are you experiencing any tax issues with the IRS Foreign Bank Account Reporting? Do you know what steps you need to take to fix those problems? Many fear the IRS since it is not easy for a common man to handle such powerful government agency. No one is safe from the IRS and when they have your scent, they will not simply go away. In order to effectively deal with your FBAR reporting, you will need to use very unique methods. Those techniques are the safe bets to deal with the IRS review process. But the only problem is how to rightly find and apply those methods?

An FBAR Lawyer is exactly what you need now to help you with the Internal Revenue Service FBAR problems. They are the most ideal persons to handle the situation since these attorneys are specifically trained to deal with any kind of FBAR issues and they know the right way to tackle it. Do you know what you are going to do about the IRS FBAR? Do you think that doing nothing and anticipating the best or making a voluntary disclosure of your overseas accounts is the proper way to manage the IRS? Perhaps you will just make a “quiet " disclosure? These are the areas where an FBAR Attorney can guide you to make a proper decision.

For any common person, Foreign Bank Account Reporting will never seem to be a simple process as they don't generally have any idea about the way to handle it properly. Your entire worries will disappear when an attorney is with you. They will give all the proper assistance and support through the whole process. If you don't make any move to resolve your tax issues, then things can become quite dangerous. Huge penalties and imprisonment could be enforced on you. Normal tax attorneys are not at all the ideal persons to take care of these cases. You will have to get help from someone who is skilled and focuses only on FBAR.

It's always best to get started fixing your problems now so that it doesn't become even worse down the line. In the beginning of the year 2012, the IRS reopened the voluntary disclosure program to help those people who have offshore accounts. Following 2009 and 2011, this is third time the IRS did this and each time, penalty payments have gone up. If you pay now, the amount will be minimal since the penalty might be raised even more later on. That is why you should get started as quickly as possible.

FBAR Attorneys would be the ones an individual must contact, if they have problems with their offshore bank accounts. With all those scary civil and criminal penalties for those who fail to take action, hiring a specialized attorney can resolve all of your difficulties with their professional assistance. These tax lawyers know what problems will usually happen in the FBAR assessment and can quickly give solution for them. So don’t wait any longer. Make a smart choice in each and every step you take by getting expert opinion from an experienced FBAR Attorney.