Notes

Ovdp Attorney
In order to avoid being disqualified from the program, it is in your best interest to contact an experienced tax attorney to find proper representation to your undisclosed foreign accounts as soon as possible. The legal team at Thorn Law Group is well positioned to advise clients on complex tax issues associated with their offshore accounts and other foreign financial assets.

The Offshore Voluntary Disclosure Program began in a slightly different form and with a slightly different name in 2009. It was on an offshoot of the traditional domestic voluntary disclosure program, which has been on the books for many years, focused on FBAR violations in particular. Under this program, taxpayers who had failed to report foreign bank and financial accounts or other foreign assets on their returns could be brought back into compliance and avoid criminal liability and the most severe civil penalties. The terms of the current 2012 voluntary disclosure program may be unappealing to many taxpayers.

The United States has recently enacted legislation commonly referred to as FATCA for the specific purpose of finding U.S. taxpayers who have unreported foreign accounts and income. FATCA requires foreign banks and financial institutions to report accounts held by U.S. taxpayer clients. FATCA and increased enforcement of civil and criminal penalties for unfiled Foreign Bank and Financial Account Reports , have given the IRS powerful new weapons in their search for undisclosed foreign assets and accounts.

The streamline disclosure program offers a chance for those who have committed non-willful violations of tax law by failing to report taxable foreign income-generating assets or bank / financial accounts, or other required foreign information reporting a chance to be brought back into compliance. However, the keyword regarding this program is “non-willful.” You must submit a certified statement that you did not willfully fail to disclose this information to avoid paying income taxes. If you are found to have falsely certified non-willfulness, severe criminal and civil penalties can occur. The IRS is now fully committed efforts to finding and prosecuting non-compliant U.S. taxpayers with undisclosed foreign source income and offshore accounts.

In addition, taxpayers must pay tax on the previously unreported income, interest, and certain penalties. Specifically, US taxpayers are required to comply with FATCA by properly disclosing and reporting their foreign accounts and foreign income in their Tax Return filings and FBAR reporting requirements of foreign and offshore accounts. In order to ensure the taxpayer has complied, the foreign financial institution issues a FATCA Letter, which will usually be accompanied by two forms – a W-9 and a W-8 BEN. Only US taxpayers are required to complete a W-9 and return the completed W-9 form to the foreign financial institution. As former IRS lawyers, our legal team has an extensive understanding of the U.S. tax laws and regulations governing foreign accounts and other financial assets held outside of the country. We know how the IRS and other federal authorities examine and investigate unreported offshore assets and accounts.

OVDP is designed to provide to taxpayers with such exposure protection from criminal liability and terms for resolving their civil tax and penalty obligations. U.S. citizens must file U.S. tax returns and report and pay tax on their worldwide income. Subject to certain de minimis exceptions, if a U.S. citizen is a resident or citizen of Israel, he or she must file a U.S. income tax return and report his or her worldwide income to the IRS. The Form 114 is an annual report that must be filed independent of a taxpayer's tax return on or before June 30 of every year.

More than 30,000 voluntary disclosures have been made since the programs began in 2009, resulting in more than $5 billion in back taxes, interest and penalties paid to the IRS. The voluntary disclosure program provides many benefits for certain taxpayers. Most importantly, taxpayers can avoid potential criminal prosecution for failure to report their foreign accounts. In addition, taxpayers can resolve their delinquent tax and reporting issues in a relatively streamlined process.

Finally, with the implementation of the Foreign Account Tax Compliance Act and the IRS's increased focus on offshore tax evasion, U.S. taxpayers are increasingly unable to avoid their obligation to report their accounts and income worldwide. Each year, thousands of Americans utilize foreign bank or financial accounts and employ foreign income-generating assets.

Our attorneys are very familiar with the reporting requirements individual taxpayers must meet under FATCA and other U.S. tax laws and regulations. We make certain that our clients understand their legal obligations and are taking appropriate steps to bring their offshore accounts and assets into full compliance with the law. Our tax law firm also assists foreign financial institutions with IRS reporting requirements and works with FFIs to design effective FATCA compliance strategies and programs.

In addition to tax and interest, the IRS generally requires taxpayers to pay a monetary penalty equal to 27.5 percent of the highest aggregate balance of the taxpayers' foreign bank accounts/entities or value of foreign assets during the period covered by the voluntary disclosure. Despite the severity of the monetary penalty, taxpayers should consider the risk of criminal prosecution for non-compliance with the foreign account reporting rules and the potential for criminal penalties.

Our attorneys work directly with our clients to identify potential tax issues and develop plans to ensure that their foreign assets are in full compliance with FATCA and other offshore account reporting requirements. The Internal Revenue Service has had success encouraging taxpayers with offshore accounts to disclose their foreign accounts and pay back taxes. In 2009 and 2011, the IRS announced the Offshore Voluntary Disclosure Program which allowed taxpayers to come forward and report foreign income, bank accounts, and other assets. The IRS had 33,000 voluntary disclosures, resulting in $4.4 billion in taxes, interest and penalties. In 2012, the IRS reopened the OVDP and set no deadline for the program to end.

Just because these assets are in a foreign country, however, this does not mean that they are not subject to taxation or foreign information reporting by the IRS. In fact, over the last decade, the IRS has cracked down on those who fail to report foreign accounts, fail to file required foreign information returns, and evade income tax from taxable offshore income-generating assets on their returns, which can lead to severe civil and criminal penalties. form 3520 instructions As if the very real possibility of penalty increases does not give taxpayers who have undisclosed foreign accounts, a reason to participate in the disclosure program as soon as possible, maybe the possibility that they will be disqualified tomorrow will. Though the provisions of agreements with foreign banks related to the FATCA legislation, an electronic data exchange protocol has been established and is now in full effect. It means that a foreign bank can send the IRS all of your foreign account information in a matter of a few seconds electronically.

While we have come across clients who have willfully omitted foreign accounts and income from their U.S. tax returns, most clients that contact us for offshore compliance issues have recently realized that they have foreign income and information reporting requirements . They’ve never been on the wrong side of the law and have never had the need to hire an attorney. They are terrified of the massive civil penalties that can be assessed for noncompliance, even for non-willful violations. Since 2009, the IRS has allowed taxpayers with undisclosed foreign accounts and unreported foreign earnings to enter voluntary programs to correct these compliance failures. Under the terms of these programs, taxpayers typically submit eight years of amended tax returns, Forms TD F 90-22.1 ("FBARs") reporting the foreign accounts, and account statements of their foreign accounts.
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