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8 Things You Must Know Before the IRS Calls You What is the Offshore Voluntary Disclosure Program? Offshore Voluntary Disclosure Program Do you have an offshore bank account that has not been reported to the IRS? Is your offshore bank being forced to turn over your secret bank account records to the IRS? Has the IRS refused to allow you to enter the Offshore Voluntary Disclosure Program (OVDP)? Yes answers to any of these questions can result in a criminal prosecution and civil penalties as high as 50 percent of the value of the account EVERY year. Tax Evasion and Offshore Accounts The government s efforts are designed to stop tax evasion by those who fail to report income from offshore accounts and other assets. If the government discovers offshore accounts with unreported income, the consequences can be severe. A person who willfully does not disclose income earned outside the United States faces criminal charges of tax evasion in addition to failure to file the FBAR if the account or accounts exceed $10,000. 1
The IRS and the Department of Justice are seeking to stop tax evasion due to unreported offshore banking. Their efforts are two-fold. First, by pressuring offshore banks to disclose American account holders; and second, by offering amnesty from criminal prosecution and reduced civil penalties for citizens who voluntarily disclose the offshore accounts under the 2014 Offshore Voluntary Disclosure Program (OVDP). Government efforts to force foreign banks to give up information have increased significantly in the last few years. New treaties have been signed with countries previously known for bank secrecy with even more such treaties forthcoming. Additionally, the Department of Justice has issued John Doe Summonses and has sought to enforce the summonses in the U.S. District Courts. Finally, the Foreign Account Tax Compliance Act (FATCA) will result in over 77,000 foreign banks reporting U.S. account holders to the IRS starting in 2015. Avoid Prosecution: Offshore Voluntary Disclosure Program At the same time that the government is taking aggressive steps to force foreign banks to disclose U.S. customers, it is also offering citizens and residents an opportunity to avoid criminal prosecution and significantly reduce the amount of civil penalties by self-reporting under the 2014 Offshore Voluntary Disclosure Program. This program reduces the harsh penalties for undisclosed offshore accounts and assets by providing amnesty from criminal prosecution and significantly reducing the civil penalties. 2
The 2014 OVDP currently has no set expiration date, but it can be terminated or changed at any time, at the discretion of the U.S. government. Importance of the Offshore Voluntary Disclosure Program A major concern for clients facing legal issues involving offshore bank accounts is the potential penalty of 50 percent of the highest balance in the account per year of any unreported accounts as well as criminal prosecution. That is why the best step an individual can take is to disclose unreported offshore bank accounts before it is too late. Under the current Offshore Voluntary Disclosure Program (OVDP), you are given the option of legally reporting undisclosed overseas accounts. This can reduce civil penalties as well as help you avoid criminal prosecution. However, it is important to note that this amnesty program by the IRS can end at any time. Once the program is ended, the benefits of immunity from prosecution and the significant reduction in civil penalties will no longer be available through the OVDP. In addition, if the IRS learns of your offshore account from the foreign bank, you will not be able to enter the OVDP. Many times, clients who come to Mark L. Horwitz have inherited a foreign bank account from a parent or grandparent. This is a common situation, and we can help you avoid criminal penalties and heavy civil penalties. 3
Should You Participate in the OVDP? Like its predecessors, the 2014 OVDP has specific requirements that must be complied with fully, accurately and in good faith in order to take advantage of the program and avoid criminal prosecution. The opportunity to participate in the 2014 OVDP should be seriously considered by anyone with undisclosed offshore income, offshore banking, accounts, assets, foreign trusts, and ownership in foreign privately held corporations and partnerships. As a result of representing people through the trials and tribulations of being charged criminally, and the subsequent efforts of the IRS assessing significant penalties and interest, it is without hesitation the advice of this firm that anyone who can, should take advantage of the 2014 OVDP. Our firm stands willing to help those who desire to participate in the OVDP. You should be advised of the legal courses of action available. Entering into the OVDP, however, has certain requirements. One requirement is that the government is not already aware of the offshore accounts and assets. If the government learns of the taxpayer s offshore accounts before that person seeks entry into the 2014 OVDP, then the program is barred to that person. 4
How Do I Know if I Need to Report? Offshore bank accounts must be reported under U.S. law. All offshore bank accounts over $10,000 must be reported yearly. Additionally, earnings on offshore accounts must be reported to the IRS. Failure to report offshore bank accounts and earnings therefrom are felonies that can result in imprisonment. Will I Avoid Criminal Prosecution if I Enter The OVDP? The IRS may recommend prosecuting a person to the Justice Department when he or she is noncompliant with offshore reporting requirements. By entering in the OVDP, that person will not be criminally prosecuted as long as the full and accurate disclosure is made. If the IRS believes that full disclosure was not made, false information was provided, or failure to cooperate occurred, then criminal prosecution may still occur. We strive to ensure that such problems do not occur and that our clients successfully complete the OVDP. Another significant benefit is that a person who successfully completes the program s requirements will greatly reduce the civil penalties that could be imposed by the government. Is the Program Scheduled to End? The OVDP is the fourth voluntary reporting program offered by the IRS. The current program has no termination date, but may be modified or terminated by the IRS at any time. 5
What if My Bank Is Providing My Records to the IRS? Even if the offshore bank is being forced to provide account records to the IRS, a person can still enter the Offshore Voluntary Disclosure Program if the application process begins before the IRS gets the records. Once the bank has turned over the records to the IRS, a person cannot enter the Offshore Voluntary Disclosure Program. Can I Be Turned Away From the Program? A taxpayer can be prevented from entering the OVDP for several reasons, including: The taxpayer took steps to prevent the offshore bank from complying with an IRS request for bank records without notifying the IRS. The taxpayer is currently under an IRS audit or is under criminal investigation by the IRS. The government believes the source of the money was from illegal conduct. The IRS obtains offshore bank records from the offshore bank or someone other than the account holder. If a taxpayer is turned down, he or she may be subject to a criminal investigation that can result in prosecution. In addition, he or she would be subject to harsh civil penalties. These and other serious legal consequences are why it is essential to hire only attorneys qualified and experienced in criminal tax matters and the OVDP. 6
Do I Still Need To Report My Income If I Will Not Owe Taxes? U.S. citizens and noncitizen residents must report all income on their U.S. tax returns, regardless of where that income was earned. If you are a U.S. citizen working overseas, you must report your income to the IRS even if your income is taxed in the foreign country. Credits and deductions may mean that you do not owe taxes, but you are still required to report income. If you fail to report your foreign income, you can face criminal penalties. The IRS has specially trained examiners who are focused on pursuing violations of this and similar tax crimes such as failing to report foreign investments. 7