By now, it is common knowledge that the IRS is investigating and DOJ is prosecuting U.S. taxpayers with undisclosed foreign assets that are not U.S. tax compliant, as well as prosecuting the foreign banks themselves for assisting in the commission of U.S. tax fraud. It is also common knowledge that foreign assets are subject to reporting on the FBAR (FinCEN Form 114) as well as IRS Form 8938. Here are some newer offshore developments:
Earlier this year, the IRS issued guidance on FBAR penalties that seems to indicate a trend toward lower penalties for both willful and non-willful failure to file the FBAR. The new penalty structure allows for a single penalty, rather than multi-year penalties. In addition, the penalties will not exceed the value of the foreign account. This new guidance is applicable to cases currently in audit.
Recent appellate court cases all uniformly have held that foreign bank statements must be handed over to the IRS regardless of any Fifth Amendment claim against self-incrimination. This means that the IRS can compel, via Information Document Request (IDR) or subpoena, a taxpayer to provide his or her offshore account records even if those records are self-incriminating. Prosecutors may then use those records to prove commission of tax crimes, including failure to file bank disclosures, filing false tax returns, tax evasion and tax fraud. Please see our earlier post here.
More countries continue to sign on to the Foreign Account Tax Compliance Act (FATCA), by which foreign banks and other financial institutions (brokerages, insurance companies) will report accounts and assets beneficially owned by U.S. taxpayers, to the IRS. Most recently, India and Cyprus agreed to implement FATCA and provide foreign financial information to the IRS. If you have financial ties to foreign countries, you must address IRS compliance for foreign accounts and assets.
The IRS continues to reach settlement agreements with multiple Swiss banks, whereby the banks avoid criminal prosecution (which happened to UBS and Credit Suisse) for aiding and abetting tax fraud. In return for deferred prosecution, these Swiss banks are paying fines to the U.S. and revealing the identities of their American account owners. Clients of these banks who have not already come into IRS compliance can make a voluntary disclosure of these accounts, but will pay increased penalties in return for no criminal exposure, but not if the IRS already has their names!
The FBAR due date is now tied to the due date of IRS Form 1040. In addition, it is now possible to request an extension for FBAR filing.
The due dates for IRS Form 3520 (reporting foreign gifts and interests in foreign trusts) has been changed to April 15, while the due date for IRS Form 3520-A (generally filed by a foreign trustee or U.S. agent of a foreign trust) has been changed to the 15th day of the third month after the close of the tax year of the foreign trust.
We can assist you in navigating offshore issues and IRS compliance for foreign assets. Do not overlook even possibly minor assets such as completely legitimate and common foreign retirement plans that may not be in IRS compliance simply because you may have neglected to think about an old plan from “back home”. Contact us for a confidential consultation.