California Taxpayers Should Consult With an International Tax Lawyer Before Disclosing Previously Unreported Offshore Bank Accounts

According to the Internal Revenue Service, millions of American taxpayers currently hold an ownership interest in an unreported foreign bank account. In addition to Swiss bank account holders, dual nationals, United States citizens living abroad, green card holders, and others may have an unreported foreign financial account. Since the Bank Secrecy Act was passed by Congress in 1970, American taxpayers with at least $10,000 in aggregate assets that are held offshore must file an annual report with the IRS.

By June 30 of each year, such accounts must be disclosed using the Report of Foreign Bank and Financial Accounts (“FBAR”). A taxpayer who is convicted of willfully failing to file a required FBAR currently faces up to five years in prison and a fine of $100,000 or 50% of the highest balance of the unreported foreign account. In order to avoid criminal prosecution, a taxpayer may want to consider utilizing the Offshore Voluntary Disclosure Program (“OVDP”).

Since 2009, the OVDP has allowed an estimated 45,000 taxpayers with undisclosed foreign bank accounts to come into compliance with the nation’s tax laws without facing the risk of criminal prosecution. The IRS has reportedly recovered an estimated $6.5 billion in unpaid taxes and penalties as a result of the program. A U.S. taxpayer who chooses to voluntarily come into compliance with their tax responsibilities through the OVDP may pay a penalty of up to 27.5 percent of the value of his or her unreported assets.

In addition to utilizing the OVDP, some taxpayers choose to utilize the IRS’s Streamlined Filing Compliance Procedures. Although the potential financial penalties are a great deal lower, a taxpayer who opts to use the streamlined procedures must provide the IRS with several years of federal tax returns and FBARs. In addition, each American taxpayer is required to certify that they did not attempt to evade their federal income tax obligations. In return, a domestic taxpayer faces a civil penalty of up to five percent of any unreported assets, while an overseas individual will typically incur no penalty as long as the conduct was not willful.

Some U.S. taxpayers opt to make a so-called “quiet disclosure.” This generally involves amending previously filed tax returns and submitting any missing FBARs to the IRS. Although previously discouraged by the agency, the IRS began authorizing quiet disclosures for individuals who do not need to use the OVDP or streamlined filing procedures last fall. Depending on a taxpayer’s situation, however, making a quiet disclosure may be risky. Because of this, it is always a good idea to consult with a seasoned international tax lawyer before disclosing any previously unreported offshore accounts.

If you have questions about your international tax obligations, you should speak with an experienced tax attorney. Certified tax law specialist William Hartsock has more than 30 years of experience advising clients in San Diego about how to successfully comply with the nation’s tax laws. To discuss your tax situation with a skillful international tax lawyer, do not hesitate to give Mr. Hartsock a call today at (858) 481-4844 or contact him through his website.

Additional Resources:

What Are the Risks Associated with Quiet Disclosures? FBAR – Report of Foreign Bank and Financial Accounts, by Bethany Canfield, National Law Review

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