FBAR International Tax OVDI

Lance Wallach

FBAR and international tax are hot issues that are costing people a lot of money. If you don’t do it right you will have IRS problems. Be careful who helps you. It may cost you a lot of money, or in the extreme time in Jail.
U.S. citizens with financial interest or signature authority over any foreign financial account (including bank, brokerage, securities, or other types of financial accounts) located outside of the United States, are required to report that information each year. Since most, if not all, U.S. citizens residing in a foreign country have a foreign bank account for their ordinary banking activities, they are subject to this same reporting requirement. If a person is required to file FBARs retroactively, they only have to file them for the last six years. The statute of limitations for assessing FBAR penalties is six years from the due date of the FBAR.

A failure to file the FBAR may subject the taxpayer to a willful or a non-willful civil penalty, in absence of reasonable cause. The civil penalty for willfully failing to file an FBAR can be up to $100,000 or 50% of the total account balance at the time of the violation. Non-willful violations are subject to a penalty of up to $10,000 per violation. However, if the failure to file was due to reasonable cause, as determined by the IRS, then there is no penalty. Please be very careful how you do this.

The IRS will consider factors such as taxpayer's reliance on a professional tax advisor, no indication of intent to conceal income or assets and other additional facts that weigh in favor of a determination that the violation was due to reasonable cause. The IRS will consider the facts and circumstances of the taxpayer's situation before imposing a penalty and may instead issue a warning letter. I have received hundreds of phone calls from people with big IRS problems. Many were caused by them getting bad advise.

The IRS reopened the Offshore Voluntary Disclosure Program (2012 OVDP) with News Release IR-2012-5 on January 9, 2012. The 2012 OVDP will remain open for an indefinite period of time, with no set deadline for taxpayers to apply. The overall penalty structure for the 2012 OVDP requires individuals to pay a penalty of 27.5% of the highest aggregate balance in foreign accounts/entities or value of foreign assets during the eight tax years prior to disclosure. Some participants, in limited circumstances, will be eligible for a lower penalty of 12.5% or 5%.

Taxpayers must consider their specific situation before making a decision about how best to become compliant with the U.S tax laws. With the announcement of the 2012 OVDP, they and their advisors need to determine whether they should follow the guidance provided in IRS Fact Sheet FS-2011-13, file returns for the past six years and hopefully be granted reasonable cause relief or, alternatively, participate in the 2012 OVDP, file and pay taxes for the past eight years to obtain amnesty from criminal prosecution. They should also consider filing and then opting out. If done correctly this may be the best solution. Consider using an ex ITS agent who was with the international division of the IRS. If he is a CPA that is even better. I have found you get want you pay for. Do not try to do this on your own. Do not use a CPA unless he has years of experience on these issues. You do not want him to learn on the job.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the American Institute of CPAs faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters.  He speaks at more than ten conventions annually and writes for over fifty publications. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Mr. Wallach may be reached at 516/938.5007, wallachinc@gmail.com, or at www.taxaudit419.com or www.lancewallach.com.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.