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.

Part Five: The Streamlined Offshore Voluntary Disclosure

Part Five: The Streamlined Offshore Voluntary Disclosure

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.