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December 15, 2021


Should you disclose offshore tax noncompliance?

Offshore accounts are not illegal per se, and there are numerous benefits to keeping assets in banks of other countries. However, offshore accounts present numerous tax complications, not the least of which is a legal landscape that seems to be constantly shifting, making it nearly impossible to stay in compliance from one year to the next.

Many people holding assets in offshore accounts find that they have inadvertently mishandled the reporting for tax purposes. On some occasions, they find that they’ve been misreporting for some time and the error amounts to a lot of tax money not being paid.

Critical decisions

As an offshore account holder who has uncovered an ongoing reporting discrepancy, you need to make some critical decisions. You want to get your arrearages handled and make sure your filings and payments are up to date. But on the other hand, you want to minimize your tax obligations and avoid fines or criminal penalties.

Voluntary reporting

One of the most important and urgent decisions to make is whether to report offshore tax noncompliance and arrearages to the IRS.

Since 2009, when the IRS inaugurated the Voluntary Disclosure and Offshore Accounts program, the program has changed year after year.

In general, voluntary reporting of your own tax noncompliance can reduce civil penalties and criminal sanctions. However, voluntary reporting does not remove the requirement to pay your taxes, including the back taxes owed.

Available options

In general, you have three basic options if you are in noncompliance or have past arrearages from offshore assets:

  1. Do nothing
  2. Fix the problem by paying off all arrearages
  3. Voluntarily report the problem to the IRS and negotiate an equitable solution

Each of these options has pros and cons.

Cost-benefit analysis

Frankly, any taxpayer with noncompliance issues should make a reasonable determination regarding whether they should voluntarily report. It is not always in a taxpayer’s best interest to report. In some cases, non-compliance does not rise to the level of bringing criminal sanctions. In another case, a taxpayer might be able to simply pay off all past arrearages and get back into compliance, which might be a simpler and cheaper option.

For others, the criminal penalties for noncompliance could be severe, so voluntarily reporting noncompliance might be the best option.

The first step

There are far too many potential nuances and critical factors to provide specific, actionable advice in a blog post. Tax law is complicated in almost all respects, and these complications are only exacerbated when it comes to offshore accounts’ noncompliance.

The most important thing you can do when you discover any possible tax problems with your offshore accounts is to talk with an experienced tax attorney. A private, confidential consultation with a lawyer you can trust is well worth the expense by helping you analyze the various options and determine the best course of action to protect your interests.

Offshore Accounts/International Tax Disputes