Take advantage of US tax amnesty programs while you can

For US taxpayers who haven’t reported overseas bank accounts: it’s time to reconsider. 

With every new presidential administration, there’s always a degree of uncertainty around possible changes to tax laws. And the amnesty programs offered to U.S. taxpayers with foreign bank accounts are no exception.

With the Internal Revenue Service (IRS) receiving increasing amounts of information about foreign accounts, taxpayers looking to take advantage of these programs should act quickly. There are drastic penalties for non-compliance with foreign financial reporting requirements and the existing amnesty programs could change or close at any moment.

Time may be running out for you to make a voluntary disclosure about non-U.S. assets and income, and benefit from existing IRS programs that may reduce or eliminate the penalties you otherwise may owe.

Since 2009, the IRS has made the non-reporting of foreign financial accounts a priority in its tax enforcement efforts. Due in part to the severe penalties that the IRS may charge for the failure to report these accounts, the IRS has been successful in encouraging taxpayers to come forward voluntarily through a series of partial amnesty programs rather than chasing down each individual non-filer. During this time the IRS has collected over US$10bn in tax, interest and penalties from more than 100,000 taxpayers through these programs.  

Amnesty programs

The OVDP and Streamlined Filing Compliance Procedures allow taxpayers who have not reported all of their foreign financial assets and income to the IRS to do so voluntarily for prior years before the IRS is aware of their non-compliance. Under the OVDP, taxpayers must generally file eight years of delinquent or amended tax returns and eight years of Foreign Bank Account Reports (FBARs), in addition to various other forms required by the IRS. They then pay the taxes, interest and penalties due, including a penalty of 27.5% or 50% of the unreported account balances. The Streamlined Procedures, which have more restrictive eligibility requirements, including that the non-compliance was not “willful”, generally require three years of tax returns and six years of FBARs, and include a penalty of 0% or 5%.

Filing through these programs allows certain taxpayers to reduce, or, in some cases eliminate, the penalties that might otherwise be charged for failing to file tax returns, FBARs, and other foreign information returns. If the IRS discovers a failure to file an FBAR, the penalty could be up to the greater of 50% of the account balance or US$100,000 per violation. Other forms carry a US$10,000 penalty per violation. Although the programs may still result in substantial penalties, they are often better than when a taxpayer is caught by the IRS.  

Under these amnesty programs, the taxpayer must make a voluntary disclosure before the IRS knows about the non-compliance. The IRS has several ways of finding out about undisclosed foreign financial accounts, including whistleblowers, reporting under Foreign Account Tax Compliance Act (FATCA), through tax information exchange agreements and from various IRS voluntary disclosure programs.

For more information, contact:

Fan Chen The Wolf Group, US
T: +1 703 502 9500 x137
E: fanchen@thewolfgroup.com  
www.thewolfgroup.com 

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