Forced to Disclose Foreign Accounts, Assets or Income to the IRS? (Golding & Golding)

Forced to Disclose Foreign Accounts, Assets or Income to the IRS? (Golding & Golding)

Forced to Disclose Foreign Accounts, Assets or Income to the IRS?

In a perfect world, everyone would have the chance to submit to IRS Voluntary Disclosure, apply for a penalty waiver, and avoid any consequences for reporting non-compliance of prior year accounts, assets, income and investments.

Unfortunately, some people miss their shot at disclosing foreign money and assets on their own terms.

Common questions and situations we handle:

  • I am already under audit?
  • My spouse is threatening to go to the IRS.
  • A competitor already reported me to the IRS.
  • I lied to my CPA.
  • Special Agents visited me at home.
  • I think the IRS is Criminally Investigating me?
  • I lied to my Foreign Bank about having a Green Card.

Sometimes the IRS Beats You to the Punch

Like you learned (sadly) in elementary school, not everything in life is fair.  The same goes for the IRS and Voluntary Disclosure.

There are typically 3 reasons why you lose the opportunity to get into compliance and are otherwise forced out of a voluntary disclosure:

  • The IRS already has your information from FATCA or other Reporting
  • The IRS already has your information from a Whistleblower
  • You are already under IRS investigation (Civil or Criminal)

Common Examples of How People are Forced Out of the Shadows

We represent hundreds of clients each year, and many times we are referred complex matters for people who missed their shot at voluntary disclosure, and must find a safe alternative to IRS Voluntary Disclosure.

Here are some examples of how people tend to get the thrusted into the IRS spotlight (not as much fun as the Hollywood spotlight).

Divorce Proceedings (Your Ex-Spouse is Bitter)

Recent example: Our client “Michelle,” had a bitter spouse. It was all fun and games when he was doing the cheating, but once Michelle moved, he was not happy about it. Michelle could care less, aside from the fact that Michelle did have significant money overseas that her bitter spouse knew about (and was fine with), until the kids met the new husband. He threatens to go to the IRS, and refuses to participate in IRS Voluntary Disclosure.

Eggshell Audit (Luck of the Draw)

Recent example: Our client “Matthew” is a successful entrepreneur. He had been under investigation for many years prior due to some stock basis issues. In recent years, he sold his business and made a windfall. The IRS audited him, primarily on issues involving 83(b). Matthew had come to us at the time of his audit, because he also had several million in undisclosed accounts. Since he is under audit, he is no longer eligible to disclose (even though he was non-willful)

Reverse Eggshell Audit (You Have to be Careful)

It is more common than you may think. Unfortunately, these are very serious. In this situation, the IRS already has your information and when you are audited it, they use it to ask indirect questions to determine where you fall on the “truth spectrum.” When a client contacts us as a result of this type of audit, it is usually after they have bee visited by the Special Agents.

IRS Special Agent Investigation (Be Very Careful)

Less common, but it makes clients very fearful. The IRS Special Agents are the ladies and gentlemen who investigate you when it is time to determine whether your matter is criminal, and whether or not it should be referred to the DOJ for criminal prosecution. If you have been contacted by IRS Special Agents, it is time to Lawyer-up.

DOJ Criminal Prosecution (Get Counsel Immediately)

If you are under investigation or indictment by the DOJ, you are facing a criminal prosecution and may be fined or sent to prison. A DOJ prosecution is a very serious matter, with more than just money on the line, You Need Counsel.

How to Beat the IRS to the Punch

If you have undisclosed foreign income, assets, accounts, or investments that you have not reported to the IRS, the safest and most prudent thing you can do is work to safely get into compliance, using one of the approved IRS Voluntary Disclosure procedures.

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Program. If not, then it is very important to retain experienced counsel and beware of scaremongering and inexperienced attorneys trying to compete in the marketplace by manipulating their experience (Former IRS whatever….)

4 Main Qualifications for Your International Tax Lawyer

  • A Master’s in Tax Law (otherwise known as a LL.M.)
  • 20 years Attorney experienced representing their own clients
  • Either the Enrolled Agent credential or a licensed CPA
  • Preferably a State Bar Board Certified Tax Law Specialist (Less than 1% of Attorneys Nationwide)

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

Contact Us Today; Let us Help You.