Offshore Accounts, IRS & You: Separating Fact From Fiction: Reporting Offshore Accounts to the IRS is complex. Each year we are contacted by thousands of clients about offshore accounts, assets, investments, and income. While we haven’t seen it all…we have seen a lot. And, as it comes time to prepare your streamlined filing application (domestic or foreign), you may begin to have some hesitation.
This is typical.
Maybe you thought you could go at it alone — and maybe you can — but you are understandably having second thoughts. Sometimes clients contact us just to help make sense of it all.
More often than not, clients contact us to take care of the whole matter (Tax, Legal, Follow-up, Audits/Examinations etc.)
It could also be you lost faith in the attorney you hired. Unfortunately, a growing trend is when our firm is contacted by clients unhappy with their current attorney. These are newer private practice attorneys who intentionally misrepresent the nature and protection of a Kovel Letter, and how the Attorney-Client Privilege works in Tax Preparation.
These attorneys artificially reduce their fees without explaining how they are going to send you out to a pre-selected CPA (who almost never specializes in offshore disclosure) and put your confidentiality at risk. They also neglect to tell you the CPA has their own fees, and the CPA will bill you in addition to what you already paid the attorney.
We inherit these types of cases all the time:
Offshore Accounts, The IRS & You
Offshore Accounts, IRS, & You — 3’s a crowd, right?
We wanted to take this opportunity to provide 5 important facts you should know on your quest to get compliant:
Offshore Reporting is New
This is FALSE.
In fact, the FBAR (aka FinCEN Form 114) has been around since 1970. It is true that the IRS has only recently increased enforcement of compliance, but it is not a new form. The Form was developed by FinCEN (Financial Crimes Enforcement Network), but since 2003 it has been enforced by the IRS.
It is not a “tax” form, and rules for assessment and enforcement differ than general tax compliance.
You Will Automatically Go To Jail For Not Reporting Offshore Accounts
This is FALSE.
In the common situation, a client simply did not know they had an offshore or foreign bank account reporting requirement. In some instances, the taxpayer will qualify for a 5% penalty. Other Taxpayers may qualify for a complete penalty waiver under on the offshore voluntary disclosure amnesty programs. The latter circumstances are the norm.
Previous Experience at the IRS Gives Your Attorney “Double Secret Knowledge” about Offshore Disclosure
This is FALSE.
The IRS employs 100,000 people. If your Attorney worked as an Attorney in the Offshore Disclosure Department at the IRS, this could of course be beneficial. If your attorney litigated or tried offshore/criminal tax matters at the IRS – this is also helpful.
But, working as an attorney in a non-related department or a non-legal role at the IRS does not provide any “secret knowledge or inner-workings.”
Foreign Retirement is Not Taxable or Reportable
This is FALSE.
The general proposition is that foreign income is taxable. In general, the U.S. has entered into nearly 60 income tax treaties (excluding estate tax and FATCA treaties).
With countries such as the U.K. and Canada, there are very specific rules regarding foreign pension (which are very beneficial to U.S. persons with foreign retirement). The U.S. has also entered into more than 50 other treaties, in which the rules regarding tax on foreign retirement and pension are more blurred.
Then, there are hundreds of countries in which the U.S. has not entered into any tax treaty, or issued any memoranda or rulings. In these situations, in which a treaty position cannot even be made, the pre-tax contributions and growth is presumably taxable.
One example is the Singapore CPF.
Unreported PFICs carry No Penalty
This is FALSE.
The PFIC regime is complicated at best. A PFIC is a Passive Foreign Investment Company. It is required to be reported on Form 8621. Consumer tax software such as TurboTax does not offer the form. The IRS does not provide sample calculations on how to do it. And, most CPAs and Tax Attorneys who do not specialize in this area won’t go near it with a 10’ pole.
Oftentimes, we are retained to handle these cases. Sometimes, the client will tell us that the prior attorney or CPA referenced that there is no monetary penalty for not filing Form 8621. While that may be correct (at the outset), there is the problem of the tax return never being closed and taxes and interest accruing at a combined tax rate of more than 40%.
In other words, by not fling the Form 8621, the tax return remains open for audit, indefinitely.
The excess distribution tax rate is whatever the highest tax rate is at the time (no capital gain or qualified dividend treatment for excess distributions).
If the tax return(s) are audited, it may lead to other penalties, such as FBAR, 8938, 5471, and more.
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.