While it's not against the law to own a foreign bank account, the tax code requires that you disclose it and pay tax on income. Since 2009, the IRS has devoted significant resources to offshore account compliance.
A couple years ago, we wrote an article with an update on the results from the first (2009) and second (2011) voluntary disclosures programs. A third round had opened in 2012 and is currently ongoing.
The Offshore Voluntary Disclosure Program was designed to allow you to mitigate consequences (i.e. avoid criminal charges and limit civil penalties) while coming into compliance. More recent Streamlined Filing Compliance Procedures have been offered for non-willful omissions.
The message has gotten out
Last week, the IRS released more up-to-date figures on the number of taxpayers who have come back into compliance. The data showed 55,800 taxpayers utilizing the OVDP to solve their tax problems. Collections of $9.9 billion have been paid in taxes, interest and penalties.
The streamlined procedures have been almost as popular with 48,000 using these to deal with past non-willful omissions. Approximately $450 million was collected in back taxes, interest and penalties. The difference in collections is related to the penalties - the streamlined procedures carry lower ones.
The Foreign Account Tax Compliance Act (FATCA) is finally getting past its initial hiccups as it enters its second year. The inter-governmental agreements (IGAs) negotiated between the US and other jurisdictions increasing the flow of information that can be used to identify non-compliance. Last year, the Department of Justice also wrapped up most of the non-prosecutions agreements through the Swiss Bank Program.
Remember that the voluntary programs are only available prior to investigation or prosecution.
In the US and around the world
The streamlined procedures lead to 96,000 delinquent and amended returns filed by taxpayers in the U.S. and those who reside abroad. The IRS recently updated the certification forms for these streamlined filings, which highlights the importance of working with a professional who stays current on changes.
If you have inherited a foreign account or have signature authority, you may still need to file the Report of Foreign Bank and Financial Accounts (FBAR) - now FinCEN Form 114. Depending on the value of an account Form 8938 may also be required.
As the IRS redoubles its efforts to uncover and prosecute taxpayers for undisclosed foreign accounts, it's crucial to get competent tax advice. Your situation will dictate which program will provide the best possible solution. Call and speak with one of the tax attorneys at Brown P.C. to learn more about foreign account reporting obligations.