FATCA May Limit Offshore Voluntary Disclosure | OVDP & Streamlined
- 1 IRS Offshore Disclosure Submissions
- 2 The Race to Offshore Compliance
- 3 FATCA Begins to Take Hold
- 4 Fear Mongering vs. Reality
- 5 Voluntary
- 6 Beating Out the FFIs to Compliance
- 7 What Should You Do?
- 8 Increased Penalty
- 9 Offshore Voluntary Disclosure – The Options
- 10 When Do I Need to Use Voluntary Disclosure?
- 11 Golding & Golding – Offshore Disclosure
- 12 The Devil is in the Details…
- 13 What if You Never Report the Money?
- 14 Getting into Compliance
FATCA May Limit Offshore Voluntary Disclosure, including the OVDP and Streamlined Offshore Disclosure Programs.
IRS Offshore Disclosure Submissions
For those of you considering IRS Offshore Voluntary Disclosure, it is important to understand the ramifications and impact FATCA (Foreign Account Tax Compliance Act) may make on the IRS Offshore Voluntary Disclosure submission process.
Namely, if the Internal Revenue Service (IRS) already received information from the FFI (Foreign Financial Institution) then when it is time to submit the streamlined disclosure application or OVDP Preclearance letter you may be summarily denied entrance into the program.
The Race to Offshore Compliance
In December of last year (2016), the IRS Commissioner indicated that he did not know the status of OVDP and Streamlined going forward, but that he was unaware that the program would continue indefinitely.
Fast-forward to the end of 2017 and the IRS is again indicating that they do not know if the program will continue. By Offshore Voluntary Disclosure, it includes both the traditional OVDP along with the streamlined program.
As a result, individuals, estates, and businesses sitting on the fence as to whether they should get into compliance now or wait maybe lose the opportunity in the future to submit.
FATCA Begins to Take Hold
It is important to understand that the purpose of the voluntary disclosure program is to allow individuals to voluntarily come forward and disclose offshore accounts, foreign accounts, assets, income or investments that were previously unreported to the IRS.
In 2010 FATCA was introduced and in 2014 FATCA began enforcement. FATCA enhance the ability of the IRS, DOT, and DOJ to locate your foreign accounts. Why? Because Currently, more than 300,000 foreign financial institutions are reporting U.S Accountholder information to the U.S. Government – that equates to millions of taxpayers who may have already been reported to the IRS without even knowing it.
Fear Mongering vs. Reality
The IRS is understaffed; as such, the chances of the IRS going after each and every person who has undisclosed foreign accounts is slim-to-none. With that said, the IRS computers are being populated with U.S. Accountholder information – especially because the information is being transmitted electronically.
It is not as if there are individuals at the IRS inputting the information into the computer. The electronic transfer of information is a pretty seamless process and more than 300,000 foreign financial institutions already reporting. Thus, it is safe to say that the chances of the IRS already having your information (even if they have not acted upon) is much greater than you may think.
We’ve written multiple articles on this issue over the years. Oftentimes, other attorneys who are new to Offshore Compliance write articles spouting nonsense such as “Offshore disclosure attorneys are just trying to fear monger” or “these attorneys are trying to push you into offshore disclosure.” that is not the case.
Firms such as ours — who focus exclusively in IRS offshore disclosure — are contacted several times a day by individuals desperately seeking an answer as to whether they should enter offshore disclosure, what their options are, and what happens if the IRS finds them first.
Beating Out the FFIs to Compliance
We are always quick to tell potential clients that if they want to disclose, it is impossible to know how long the window of opportunity will remain open. Once the IRS has your information (even if the IRS has not contacted you yet) you may very well lose the right to enter the program.
With OVDP, it means that the preclearance letter will be denied. From a Streamlined Disclosure position it is a little more nebulous, because no preclearance is necessary (aka no “request for entry”) and unless the individual knows she is under audit, the applicant is typically not precluded from submitting a streamlined application. But, the individual must still be non-willful and the IRS still ha the right to audit the individual.
*This is another reason why we never recommend a pre-clearance letter for individuals who are seeking to go streamlined. Because, if you are rejected then you may lose the right to go streamlined — since now you have knowledge that you are under investigation.
What Should You Do?
There is no way to know whether the IRS is going to eliminate the program entirely or modify, and/or if the IRS already has your information in their system.
It is important not to confuse any potential repatriation rules for corporations with respect to repatriation rules for individuals. Yes, the current president wants to have businesses bring money back into the United States to compete on a corporate level, but he has made no mention of integrating any FATCA repeal or otherwise into the new tax reform.
If you are considering offshore disclosure, you should move forward sooner as opposed to later. That does not mean you should be pushed or pressured into offshore disclosure if you are not ready to do so – it just means that if you want to enter the program, you may be limited by the IRS is termination of the program.
There is also no way to know whether the penalty will be increased, but it is important to note that over the years the OVDP penalty has increased significantly, all the way up to 50% for certain individuals who have their money invested with any number of the more than 140 advisers or institutions who are considered “foreign financial facilitators.”
Offshore Voluntary Disclosure – The Options
Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.”
It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
The Devil is in the Details…
If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.
It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.
Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.
What if You Never Report the Money?
If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.
As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.
Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).
Getting into Compliance
There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.
Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.
Contact Us Today, We Can Help You!