Tax Reform

Have Foreign Assets? Hurry Up, the IRS Is Ending Its Amnesty Program

Have Foreign Assets? Hurry Up, the IRS Is Ending Its Amnesty Program

Taxpayers have a variety of reasons for owning foreign financial assets such as having family members or employment in other countries wherein foreign bank accounts make their lives easier. But as interest rates dramatically fell in the last two decades, foreign assets have become more appealing for wealth building. This has led to both accidental and willful underreporting of foreign-sourced investment income in addition to intentional placement of funds overseas to avoid U.S. income taxes. If you have a foreign bank account and/or other assets overseas, you may be subject to the following regulations and need to take action quickly.

In an attempt to crack down on offshore wealth with nefarious purposes in the early 2010s, the Foreign Account Tax Compliance Act (FATCA) was signed into law with the IRS being the chief enforcer along with the Department of Justice. This led to the Foreign Bank Account Reporting requirement (FBAR) and the Offshore Voluntary Disclosure Program (OVDP). Third-party reporting and reciprocity agreements have been utilized to improve the IRS' chances of catching tax cheats, along with increasing awareness for U.S. taxpayers affected by these regulations so they can correctly report their offshore assets and income and pay the subsequent taxes.

The chief purpose of OVDP is to get taxpayers to make voluntary disclosures over noncompliance with FATCA to be free from IRS penalties and have their taxes on these income sources assessed and paid. Per the IRS, over 56,000 taxpayers have paid back a total of $11.1 billion in back taxes, penalties and interest since OVDP's inception in 2009. OVDP disclosures peaked in 2011 with 18,000 taxpayers then fell to just 600 in 2017.

If you have enough foreign assets to be subject to FATCA regulations, you only have until September 28, 2018, to make a voluntary disclosure under OVDP.

What Happens Now That OVDP Is Ending?

The IRS feels that taxpayers subject to FATCA have had more than enough time to get their foreign asset matters in order and report them without fear of being penalized. The September 28 deadline means that you have until this date to fulfill your reporting obligations, if you are subject to these requirements, or else you will be subject to incredibly steep nondisclosure penalties if you wait.

If you're unsure whether or not your foreign assets must be disclosed, the IRS has a Streamlined Filing Compliance Procedures program that certain taxpayers are eligible for, providing that their nondisclosure was not willful among other criteria. However, it's not just the imminent deadline that you need to be concerned about: The IRS has also been discussing ending this program in addition to OVDP even though it helped over 65,000 taxpayers become compliant with FATCA.

Foreign asset matters with respect to the IRS are incredibly complex and require foreign information returns in addition to your regular tax return. If you have foreign assets or have been deploying foreign tax avoidance measures, you should speak with a tax attorney specializing in foreign assets and FATCA compliance. If you're under threat of civil examination by the IRS, you need to be aware of both the penalty structures and any short-lived relief as well as which assets are subject to disclosure rules.

Gordon W. McNamee, CPA writes for TaxBuzz, a tax news and advice website. Reach him and his team at [email protected].  

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

GORDON W. MCNAMEE, CPA
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