If you are among the growing number of Americans who generates income through overseas businesses or properties, you likely take a variety of measures to protect your offshore assets. Taking steps to keep your assets secure is almost always a good idea unless one of those steps involves a willful failure to report money earned overseas that is housed in offshore bank accounts.
If you are worried that you have failed to properly disclose information regarding your offshore assets, you might be eligible to participate in the IRS’s FBAR Amnesty Program. Below is a look at the evolution of this program and how it can help taxpayers safeguard against IRS investigations and subsequent penalties.
What Is the FBAR Amnesty Program and Who Is Eligible to Participate?
“Citizens and residents of the United States are taxed on their worldwide income. To help prevent the use of offshore entities for tax evasion or deferral, Congress has enacted several specific provisions in the Internal Revenue Code. Some provisions trigger recognition of gains that would otherwise be deferred. Others deny deferral of tax on income moved offshore.” – Internal Revenue Service
Before exploring the program’s evolution and recent updates, it is helpful to understand exactly what the FBAR Amnesty Program is and why it was developed. Also known as the Offshore Voluntary Disclosure Initiative, or OVDI, the FBAR Amnesty Program is a program designed to help taxpayers with offshore assets fully comply with IRS tax reporting requirements.
The requirements to qualify for the program are fairly straightforward. The program welcomes taxpayers who genuinely wish to improve their compliance with the IRS. However, there are two circumstances that would preclude you from program participation:
- First, if you are currently being audited by the IRS or if the IRS has notified you of their intent to audit you, then you cannot participate.
- Second, if the IRS has been notified of your foreign bank accounts, then you cannot participate in the program.
At the heart of the program is the desire to motivate taxpayers to report their offshore assets voluntarily and with transparency. Ideally, program participants develop a proactive mindset regarding future reporting and are much more likely to comply with IRS requirements.
What Are the Penalties Associated With the Program?
Once you confirm that you are eligible to participate in the FABR Amnesty Program, you need to prepare yourself to face some potential penalties. And penalties for not filing a Foreign Bank Account Report are far from lenient. Failure to report your offshore assets can leave you facing monstrous financial penalties and a host of civil penalties.
The good news is that you can minimize or eliminate these penalties by participating in the FBAR Amnesty Program or one of the other legitimate programs offered by the IRS. But you still need to be prepared for the following:
1) Amended Tax Returns and FBAR Filings
One of the first things you will need to do is to file an FBAR for the year(s) you failed to file. You may be required to go back as far as six years to report all the offshore income you failed to report. Additionally, you may need to file amended tax returns to the IRS.
2) Financial Penalties
If your reported offshore asset base is significant, you need to be prepared to pay any taxes owed according to your amended tax returns. Then, you may have to pay an accuracy related penalty of 20%. Finally, you may have to pay interest and a willful FBAR penalty.
3) Penalties for “Honest Mistakes”
Everyone makes honest mistakes. But even an honest mistake, such as filing the incorrect forms, can leave you facing financial penalties of up to $10,000 even if you only temporarily had money in an offshore account to purchase a vacation home. If program participants receive the guidance of a skilled tax attorney and are able to explain the nature of their errors in writing, the likelihood of being penalized for an honest error decreases substantially.
How Has the Program Evolved Over the Years?
Between 2014 and September 28, 2018, individuals who wished to report previously unmentioned offshore income were steered toward a program called the IRS Offshore Voluntary Disclosure Program (OVDP). After nearly a decade of existence, the OVDP was closed and replaced with new voluntary disclosure procedures outlined by the IRS.
While the new procedures generally require the taxpayer to disclose much more information compared to the OVDP, there are some positive aspects from a taxpayer standpoint. For example, taxpayers are now able to appeal certain liabilities imposed due to their voluntary disclosure. All appeals should be made to the IRS Office of Appeals.
The key to a positive experience with today’s FBAR Amnesty program is your proactive approach. You need to take action before the IRS to qualify and become compliant by adhering to program guidelines. Delaying for even a couple of days is unwise. That gives the IRS a couple of additional days to discover your assets and initiate contact with you, thereby making you ineligible for the program.
What Is the Best Way to Learn More About the FBAR Amnesty Program?
As outlined above, the FBAR Amnesty Program is continually evolving. Remaining abreast of the latest updates by reading tax blogs, following news on associated tax laws, and potential penalties is essential to safeguarding your organization. It is also your responsibility as a business owner.
The single best way to protect your offshore assets and remain abreast of the latest program changes is to contact an experienced offshore tax professional today. By seeking the guidance of a skilled specialist, you can experience peace of mind knowing you have an experienced tax defense advocate on your side.
For the last decade, the team of accomplished tax attorneys with Silver Tax Group has helped people across America avoid costly financial penalties and IRS time-consuming IRS audits. And as a Better Business Bureau (BBB) accredited business, we are dedicated to providing our clients with the most thorough and responsive service 24 hours a day. We invite you to schedule a complimentary consultation with a member of our team today. We look forward to becoming your trusted team of tax professionals!