Traditionally, individuals who did not report all of their income to the IRS faced the possibility of various criminal tax charges including tax evasion or the filing of a false tax return.  A taxpayer is required to disclose on an individual income tax return (Form 1040, Schedule B), whether at any time during the preceding year he or she had an interest in, or signature authority over, a financial account in a foreign country containing over $10,000. If so, a separate Form TD F 90-22.1 (“Report of Foreign Bank and Financial Accounts,” commonly known as an “FBAR”) must be filed with the IRS.

The failure to file an FBAR with the Treasury Department may be charged as a separate criminal offense if a willful violation has occurred.  While these charges are serious, the limitations on IRS resources and the difficulties in investigating assets located offshore traditionally limited IRS enforcement in this area.  However, a combination of recent legislation, changes in the case law, and newfound access to offshore information by the IRS and the Justice Department has changed the dynamics in this area substantially.

The IRS recently announced a settlement offer for those that voluntarily and timely disclose unreported offshore income.  Those meeting the terms of the offer will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. In other words, 20% of the highest asset value of an account anytime in the past six years. However, those who come forward on a timely basis will not face criminal prosecution.

Contact McLaughlin & Quinn, LLC Partner Moore McLaughlin, Esq., CPA for more details on this amnesty program at mmclaughlin@mclaughlinquinn.com or by calling 401-421-5115.  Time is of the essence.

Click here for a recent Wall Street Journal article discussing this issue.