Cautionary Tale for Those who Wait!

Those who wilfully fail to file the required foreign bank account reporting forms (FBARs) under the Bank Secrecy Act of 1970 and declare the income earned from those accounts on their income tax returns are being pressured from all sides to participate in the Offshore Voluntary Disclosure Program (OVDP).

On one hand, foreign banks are starting to freeze accounts of US account holders with the stipulation that the accounts can only be accessed once the account holder can prove that the owner is compliant with US tax laws.

On the other hand, the IRS is actively collecting information from banks through the requirements imposed by the Foreign Account Tax Compliance Act reporting requirements and through various other sources such as deals made by defendants and bank with the Department of Justice. Once the IRS starts investigating an account holder, this person cannot participate in the OVDP. Thus, it is a race against time to make sure that those hold-outs come clean before the IRS obtains their name from another source.

Nonetheless, the IRS still wants those who wilfully fail to file their FBARs and declare their income to participate in the OVDP. However, the Service has modified some of the conditions that would allow “offenders” to participate:

Those who hold accounts with banks and promoters on a “blacklist” will be subject to a penalty in the amount of 50% of the highest account balance held by those institutions in the last 8 years, instead of the customary 27.5%. Currently there are 10 institutions on the list but the Service has indicated that they will be expanding it at their discretion.

There is a glimmer of hope: The Service has loosened some of the requirements to participate in the streamlined program, which is designed for those who innocently fail to file the forms and report the income. The streamlined program will be explored in more detailed in a future article.

Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.