The Internal Revenue Service is hunting for anyone attempting to cheat the tax system by using foreign accounts. Unfortunately, this new tactic to settle unpaid taxes on illicit activities has resulted in huge penalties for citizens living in other countries, likely an unintended consequence.
Sorting Through the Aftermath
Instead of catching criminals, the IRS is penalizing the likes of Americans married to foreigners and retirees living in other countries. These individuals are scrambling to avoid criminal prosecution by filing the correct paperwork. Once filed, they are often slammed with penalties that increase the payment by exorbitant amounts, reports Reuters.
The IRS stated over 30,000 people came forward during the amnesty period and it collected $2.2 billion in taxes and penalties. With over five million Americans living abroad this will likely be "the tip of the iceberg."
Although taxes are required, penalties can be avoided by completing a Report of Foreign Bank and Financial Account (FBAR).
If financial interests like bank and brokerage accounts, mutual funds or trusts are held an FBAR is required by the Bank Secrecy Act. This tool is intended to help identify individuals attempting to circumvent US law, according to the IRS.
Any citizen or resident of the US, and some corporations, with such financial interest exceeding $10,000 must file. Exceptions include:
- Accounts jointly owned by spouses
- Accounts owned by government entity
- Some retirement plans
- Trust beneficiaries
Penalties can exceed the account balance and can be both civil and criminal in nature. Criminal penalties can be avoided through voluntary disclosure practices (VDP).
Voluntary Disclosure Practices
Although the IRS' second voluntary disclosure program technically expired in 2011, the longstanding practice remains available for taxpayers that truthfully, timely and completely comply with all provisions of the VDP.
A VDP is made by following IRS procedures and is not automatic. Following proper procedure can still lead to criminal charges, but is considered in the investigation to determine whether prosecution is recommended to the Department of Justice. To avoid such charges and ensure your legal rights and remedies are protected, contact an experienced offshore account and foreign bank account reporting (FBAR) attorney.Print this Page