Complaints Increase as IRS Tightens it’s Offshore Reporting Procedures

The IRS has extended the time to file a TD F 90-22.1 disclosure form until June 30 this year. Unsure whether file the disclosure form? Be wary about making your decision.
The form, referred to as the Report of Foreign Bank and Financial Accounts or FBAR, is used to report foreign financial accounts.

The IRS has become diligent in the enforcement of this duty and that might cause significant problems for certain taxpayers. The penalties for failing to file a FBAR are serious, and include jail time and hefty fines.

Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program (OVDP) was engineered to get compliance from taxpayers who’ve used concealed foreign bank accounts and hidden foreign entities to evade United States taxes.

The system was used in 2009 and 2011, and the IRS declared in January that it is considering resurrecting it in 2012.

Success Rate

In 2009 the IRS was able to collect $3.4 billion dollars from taxpayers who complied with the program. From the 2011 program, the IRS has picked up a further $1 billion dollars in payments.

Penalizations

It would seem that the Offshore Voluntary Disclosure Program has achieved success, partly due to the harsh repercussions that go with neglecting to be in compliance. The less severe violations applied to taxpayers who didn’t know they were supposed to comply with the regulations carry a $10,000 penalty.

If the failure to file is thought to have been done knowingly, the fine can be $100,000 or half of the total balance of your bank account or accounts. In addition, every year you did not file the disclosure is looked at as a separate violation.

Have You Disclosed All Your Earnings?

When discussing the program in January, IRS Commissioner Doug Shulman asserted, “Our concentrate on offshore tax evasion continues to supply powerful, important results for the country’s taxpayers.” He also stated “As we’ve said all along, individuals need to come in and get right with us before we find you. We are following more leads and the danger for those who don’t disclose their foreign assets will continue to increase.”

If you weren’t aware of the filing requirements yet you paid all the required tax (or didn’t owe any) you’d still be breaching your filing obligation and subject to face penalties. If you file now, you might be able to make the case for having made an unwilling mistake and therefore reduce the penalties you may be faced with.

The fallibility with the program is that the Internal Revenue Service could end it at any point, and as Commissioner Shulman mentioned the window of non-reporting will be on the rise.

Quiet Declaration

What if you try to simply file the FBAR forms and modify any applicable tax returns, and hope the IRS doesn’t spot the previous noncompliance?

The Internal Revenue Service strongly advises against this method. They particularly note that, “Those taxpayers making “quiet” disclosures need to be aware of the chance of being inspected and possibly criminally prosecuted for all appropriate years.”

This implies there’s a larger likelihood that if your accounts are found, you’ll be dealing with the special agents of the Criminal Investigation Division of the IRS. Neglecting to file a FBAR carries possible criminal penalties and may be charged as a felony.

There are eleven separate possible violations a taxpayer could be charged with for failing to comply with the OVDP, carrying a significant range of penalties.

Are You in Trouble With the IRS?

JG Tax Group is an experienced group of ex-IRS agents and other tax professionals who can help you deal with an IRS problem. If you have any questions please feel free tocontact us today.