The Internal Revenue Service thinks - despite having all evidence to the contrary - that the way to collect greater tax revenue is to focus on US tax payers who have unreported foreign accounts. The media is scattered with casualties of the IRS’ ruthless stance on tax payers who don’t “come clean,” and therefore are savaged by FBAR penalties. The Internal Revenue Service has made a decision to aim for the affluent individuals by scrutinizing their tax returns, just hoping to find someone with undeclared overseas income.
FBAR penalties might be extremely harsh
FBAR penalties are computed on one's account value and never on the taxpayer's gross income. FBAR penalties are much worse than tax penalties; it will be greater of $100,000 or 50% of the account value for each willful violation. Consider you are having $1,000,000 in on your overseas account. For one year, the FBAR penalties could be $500,000. For two years, you could wind up paying the entire account balance for your willful violation. Not only this, the Internal Revenue Service can assess the FBAR for 6 or more years - putting taxpayers in a a whole lot worse situation.
There are various valid reasons to possess a overseas bank account (life insurances and retirement accounts can be offshore, particularly for people that life overseas or originate from another country). These individuals are usually dual citizens who take up a very important role in the economic growth of our country. However, the sad truth is, the United States asserts universal taxation legal authority over all income of an individual, irrespective of the location of the paying source yielding the income or earnings.
Precisely what are your options to avoid FBAR penalties?
If you are not under investigation or audit, you can utilize one of the several voluntary disclosure programs available:
Standard OVDP with 27.5% penalty: This one time 27.5% offshore penalty (“in lieu of an FBAR penalty”) targets those that have bad facts on their side. It will be applied to the highest account balance during the time period included under the OVDP.
Standard OVDP with a 50% penalty: This program is for citizens where the IRS has details already on the bank. A 50% Offshore Penalty is going to be applied on highest aggregate balance in the OVDP period.
Streamlined Domestic Offshore Procedures: This process is a significantly less expensive method for non-willful taxpayers staying in the United States to solve overseas account non-compliance. Here, they have to pay only one 5% penalty on their highest aggregate offshore account balance during the last six years.
Streamlined OVDP offshore: Taxpayers who physically reside outside the United States may be eligible for a 0% offshore penalty by certifying non-willfulness.
FBAR only: This is for individuals who have properly submitted all taxable income which includes from their foreign assets but didn't file the delinquent FBARs. The IRS may not impose a penalty when a statement explaining the reason why the reports are submitted late is attached during the filing process.
OVDP Opt-out: This program is for individuals who disagrees with the OVDP stringent penalty structure and would like to get considered under the regular FBAR assessment guidelines. A FBAR warning letter, Letter 3800 or non-willful penalty is the ultimate goal of any opt out.
Voluntary Disclosure: If you're not allowed to take part in the OVDP since you are under investigation by IRS - CI, it is recommended to attempt to enter into a regular IRS voluntary disclosure program or get ready for trail.
Being under investigation for unreported offshore account
You might have criminal exposure; consequently, you need a legal protection with a tax resolution firm which understands the technicalities of the Bank Secrecy Act of 1970 (BSA) and Internal Revenue Service FBAR procedures. You should note that civil FBAR penalties can be in additional to criminal FBAR penalties, but that in order to get civil FBAR penalties, the federal government need to participate in FBAR lawsuit in federal court.
Either way, remember that numerous taxpayers across the country, with situations that happen to be probably similar to you, have obtained relief for their tax problems with the professional team of Parent, Parent, & Wynn LLP, the IRSMedic.com. They will assist in bringing your offshore account into IRS compliance and lowers your criminal exposure to the Internal Revenue Service.