Kevin E. Thorn
Individuals who hold offshore accounts can face substantial penalties if they fail to voluntarily disclose their foreign holdings to the IRS. However, these penalties can also be avoided (or at least substantially mitigated) with careful and strategic tax planning. If you hold offshore accounts, the best way to reduce your risk of facing an audit is to work with an experienced offshore voluntary disclosure attorney. We’ve broken down 10 top tips for avoiding related penalties.
First, you must determine if your offshore accounts are subject to voluntary disclosure. If they are not, then you have nothing to worry about. If they are, then you must comply with the applicable voluntary disclosure requirements.
Voluntary disclosure of offshore accounts requires the submission of IRS Form 8938 and IRS Form 14654 for U.S. residents . If you are behind on your filings, you will also need to submit an amended filing using IRS Form 1040X. Depending on your personal circumstances, you may need to file other IRS forms as well.
In addition to disclosing your offshore accounts to the IRS, you may also need to disclose them to the Financial Crimes Enforcement Network (FinCEN). This is done using FinCEN Form 114, which is also commonly known as an “FBAR.”
If you are delinquent on your voluntary disclosures, your best option may be to utilize the IRS’s streamlined filing compliance procedures. Submitting a streamlined filing can allow you to pay reduced penalties, but it can also expose you to an IRS audit or investigation.
One of the eligibility criteria for submitting a streamlined filing is that your failure to file must be “non-willful.” If you cannot adequately demonstrate non-willfulness, then you will be required to pay the full penalties for offshore account disclosure violations.
There are various other eligibility criteria as well. In order to submit a streamlined filing and pay a reduced penalty, you must meet all of the eligibility criteria.
The IRS has special rules and a special address for the submission of streamlined filings, and you must separately file your FBARs with FinCEN.
At the time you submit your streamlined filing to the IRS, you must also submit payment of all taxes, interest and penalties owed. Inaccurately calculating any of these amounts may result in denial of streamlined filing protection.
If you receive an audit letter or are otherwise contacted by the IRS regarding your offshore voluntary disclosure obligations, you should respond promptly. Your first step should be to contact a tax attorney in your area.
While U.S. taxpayers with qualifying offshore accounts have certain voluntary disclosure obligations, voluntarily disclosing too much information can result in unnecessary exposure to penalties and prosecution. Once again, working with an offshore voluntary disclosure attorney is the best way to ensure you are protected
Kevin E. Thorn, the managing partner of Thorn Law Group, is recognized as a leader in his area of practice throughout the country and across the globe. His clients are individuals, tax professional...
