Having an offshore bank account has many benefits, and in some cases, individuals in Texas or elsewhere who have these accounts may think that they can get by with bending the tax-related rules for those accounts. However, complying with laws and regulations is essential in avoiding potential criminal penalties. In some cases, individuals may realize that an issue with their offshore accounts has occurred and could benefit from voluntary disclosure.
Voluntary disclosure allows a person who knows he or she has violated tax-related laws to voluntarily disclose the issue. This voluntary approach could allow for lesser penalties from the IRS, which could otherwise conduct an investigation and pursue serious criminal charges for possible tax fraud. Of course, that does not mean that a person who discloses this information is entirely off the hook.
Additionally, taxpayers must apply for the newest version of the voluntary disclosure program, which went into effect last year. The taxpayer must file Form 14457 to determine eligibility. If accepted into the program, the following steps will likely occur:
- The taxpayer will have to disclose detailed information about how the foreign account did not comply with tax laws.
- A six-year lookback could apply to a taxpayer’s case, and the IRS will use the year with the highest tax liability to apply penalties as necessary.
- The taxpayer must assist the IRS in any investigations into other parties who may have had a role in the noncompliance.
- The taxpayer must provide information regarding advisors and other parties the taxpayer used for financial services during the time of noncompliance.
Choosing to move forward with voluntary disclosure can have pros and cons. As a result, it is important for Texas taxpayers to consider this option closely and determine whether it could be the right option for their particular situation. To ensure that they have the right information, it may be wise to consult with professionals experienced in tax law.