If you have an offshore bank account and have not submitted the necessary documents for taxation by the IRS, you may have a problem. The IRS does not smile upon holders of foreign bank accounts that do not pay taxes to the US government. However, the IRS does offer a way out for many taxpayers that either forgot to tell the IRS about their accounts or were hiding money abroad. I have many Clients that are the owners of several foreign accounts and had to go through the process of showing them to the IRS for taxation, so I know enough about this that I can say it is a little unnerving. I wrote this article to help prevent other foreign account holders from being prosecuted for civil penalties or even criminal charges from failing to disclose their accounts. So, without further ado, here are the five things to know about the 2012 IRS offshore voluntary disclosure program.
Number 1: This program is essentially a financial amnesty plan.
This program is set up as a way for the US government to collect taxes from those with foreign accounts and avoid the cost of putting them in prison. It is a financial boon to the government to offer tax amnesty rather than imprisoning people because if they owe taxes then they will not be able to work behind bars and this will reduce the likelihood of the government getting its taxes back. Wealthy individuals with foreign accounts should heed this plan if they have not already disclosed their accounts.
Number 2: Civil penalties for noncompliance are severe.
If you fail to submit an FBAR form reporting your foreign accounts if you have had at any time 10,000 dollars or more in combined money within foreign banks, the IRS will fine you heavily. The fine system currently in place will take either 100,000 dollars or 50% of the money in the foreign bank accounts, whichever is greater. It pays to keep your paperwork together.
Number 3: Prison time is a possibility as well.
Failing to submit an FBAR can end up costing you ten years in prison and 500,000 dollars. Tax evasion can be up to five years and 250,000 dollars as well. Even just filling out a false tax return can net you three years in prison and a 250,000 dollar fine as well. Do your taxes right even if you do not have the skills of a DC tax attorney.
Number 4: The IRS wants to work with you.
It is not in their best interest to put you in prison because it is likely that you have a job and will not continue to make money inside prison. If your accounts are small enough in size then it is likely that you will actually be a financial liability to the government rather than a net plus. They do not want to imprison you if they can avoid it so make sure that you fill out the proper forms and they will likely work with you.
Number 5: Even if you cannot pay all the taxes and interest that was accrued, do it anyway.
Sometimes the interest that has collected on tax debt is so great that it cannot be fully paid. However, it is till in your best personal interest to file an FBAR and talk to the IRS. If you cannot pay the fines and interest in full then they will demand to see if you are really in a state of financial hardship. If you are, then the IRS will work out a payment plan with you.