Criminal Prosecution For Foreign Accounts May Be Avoided
| Criminal Prosecution For Foreign Accounts May Be Avoided |
 |
 |
|
If you, a client, or anyone you know has a foreign bank account, please advise them to learn about a little-known reporting requirement that could result in criminal prosecution by the IRS. If these people have failed to report all of their overseas income, even harsher criminal penalties could apply. Fortunately, the IRS has initiated an amnesty program that runs until September 23, 2009. The tax attorneys at McLaughlin & Quinn, LLC are currently advising clients on how to take advantage of this limited amnesty program to avoid criminal prosecution. 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. Highlights of the offer. As explained in an IRS memorandum, the tax liabilities related to offshore issues of taxpayers that make “voluntary disclosure requests'” will be settled as follows:
The above terms will apply only to taxpayers that “fully cooperate with IRS both civilly and criminally,” for all voluntary disclosure requests that are submitted to IRS, and are not yet resolved. The terms will remain in effect only until September 23, 2009. Taxpayers who hid money offshore can avoid criminal prosecution by timely complying with the terms of the offer. The IRS warned that when the 6-month window closes - on September 23, 2009 - the IRS will reevaluate all of its options. The IRS further warned that for those “who continue to hide their heads in the sand, the situation will only become more dire.” The offer is open to all taxpayers that comply with IRS's terms, including corporations, partnerships and trusts, and those taxpayers that have an offshore merchant account. The offer does not apply if IRS has initiated a civil examination of the taxpayer, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entities. Last month, IRS released 30 FAQs explaining the nuts and bolts of the settlement offer. Now, IRS has followed up with 21 additional FAQs addressing the settlement offer. Quiet disclosures. The IRS said it is aware that some taxpayers were attempting “quiet disclosure” by filing amended returns and paying any related tax and interest for previously unreported offshore income without otherwise notifying IRS. IRS strongly encouraged such taxpayers to come forward under the voluntary disclosure offer. It said those that don't run the risk of being examined and potentially criminally prosecuted for all applicable years. IRS says it has identified, and will continue to identify and closely review, amended tax returns reporting increases in income. When deciding whether to try a quiet disclosure or take advantage of the voluntary disclosure offer, IRS says taxpayers and their advisers should consider the nature of the error they are trying to correct. Taxpayers with undisclosed foreign accounts or entities who make a voluntary disclosure will become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Additionally, making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Those coming forward will avoid criminal prosecution. IRS Commissioner Doug Shulman's Statement on Offshore Income says that those taxpayers who hid money offshore can avoid criminal prosecution by timely complying with the terms of the offer. We are currently advising several clients on the details of this amnesty program. Feel free to contact Managing Partner F. Moore McLaughlin, Esq., CPA, if you or someone you know wants to learn more about this program. Time is of the essence. |
