Avoid Foreign Account Civil Penalties & Criminal Tax Exposure

Avoid Foreign Account Civil Penalties & Criminal Tax 

When a person has been non-compliance with the various international information reporting form filing requirements mandated by the IRS — such as Form 8938 (FATCA), FinCEN 114 aka FBAR (Foreign Bank and Financial Account Reporting) or Form 3520/3520-A (Foreign Gifts and Trusts Reporting) — it may lead to the IRS issuing significant fines and penalties, and even criminal tax exposure if the Internal Revenue Service believes that the taxpayer acted willfully. For the US government to prove civil foreign account penalties, they must prove it occurred by a preponderance of the evidence — either for willful or non-willful penalties. But, in order to prove criminal violation — like any other criminal case — the US government is required to show that the crime was committed beyond a reasonable doubt. Let’s look at a few ways Taxpayers can avoid foreign account civil and criminal tax exposure involving their foreign account non-compliance.

Foreign Account Compliance from the Outset

For some US taxpayers, they may learn about the international reporting requirements in the first year they are required to report the accounts and assets — but for one reason or another do not start with compliant filings. It can be overwhelming for taxpayers (especially new US Persons) to have to fie all these unfamiliar forms, but starting the process in compliance makes it much easier for taxpayers in the future, especially if they are going to start receiving or making international wire transfers from overseas to the United States and/or accumulate more money abroad in future years.

Offshore Disclosure for Accounts Abroad

If a person is already out of compliance, the Internal Revenue Service has developed several offshore tax amnesty programs that assist taxpayers with safely getting into compliance. If a person is willful, then they generally will submit to the traditional voluntary disclosure program. If the taxpayer is non-willful, there are many other options available such as the Streamlined Filing Compliance Procedures, the Delinquency Procedures, and/or Reasonable Cause.

Avoid Quiet Disclosure of Foreign Accounts

If a Taxpayer has been out of compliance for one or more years, and they get too caught up in the online fear-mongering, they may try to submit a quiet disclosure instead of using one of the approved offshore programs in order to get into compliance. Quiet Disclosures are highly frowned upon by the Internal Revenue Service and if the US government determines that a taxpayer intentionally sought to avoid going through the amnesty programs by making a quiet disclosure, it may result in significant civil penalties and even a criminal tax investigation.

Do Not Misrepresent Foreign Account Ownership in an Audit

FATCA is the Foreign Account Tax Compliance Act.  More than 110 countries and hundreds of thousands of Foreign Financial Institutions actively report US taxpayer information to the United States. Therefore, if a US Person has a foreign account, there is already a likelihood that the Foreign Financial Institution may have already reported the account information to the IRS — even if the IRS has not initiated an audit yet. If the person is audited, it is crucial to not intentionally misrepresent the ownership of foreign accounts, assets, investments, or income — because a Taxpayer may actually be in the middle of a reverse eggshell audit, but not even know it – – if the IRS already has the information but the Taxpayers was not made aware of this fact and then doubles-down and claims that they do not have any foreign accounts — and while under penalty of perjury — it may result in a referral to the IRS Special Agents for a criminal investigation.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance.