IRS Penalty Abatement (2018) – Foreign Accounts | Offshore Assets
IRS Penalty Abatement (2018) – Foreign Accounts | Offshore Assets
In recent years, and due to the increased enforcement of FATCA (Foreign Account Tax Compliance Act) along with renewed interest in FBAR (Report of Foreign Bank and Financial Accounts) reporting, the IRS has been issuing significantly higher fines and penalties against individuals with unreported, undisclosed, or undeclared foreign accounts, assets, investments, and income.
Why Does the IRS Care?
It is not so much that the IRS is predisposed to want to go after individuals with foreign accounts and assets, but it is just typically easier for them to do so, since the IRS makes the automatic presumption that if you have money overseas, it must be for illegal purposes.
Oftentimes, when individuals want to hide assets offshore, they do not go through the same stringent planning that they do with domestic laundering, invasion and fraud criminal planning.
For example, when a person wants to launder or hide money in the United States, they typically have to enter into the black market/underworld. When it comes to offshore and foreign related issues, sometimes it is a simple as an offshore investments that the IRS deems so absurd — that it must be illegal.
The IRS Reduces the Penalty Threshold
In years past, the IRS would have to show intent. In other words, the IRS would have to show that a person has willfully or intentionally failed to report or disclose offshore money, in order to hit them with willful penalties (which can reach 100% value of the account in multiple year tax audit scenario)
Fast-forward to today, and not only can the IRS show intent by showing a person acting with reckless disregard (a much lower standard), but the IRS tries to put the burden back on the individual to show that he or she was not willful.
In other words, the IRS strategy is to require an individual to prove they were non-willful in order to avoid willful penalties. In reality, it is the IRS that has the burden to show a person committed fraud, invasion or another specific intent type of crime.
The IRS Pounces
Aside from increasing enforcement, the IRS has increased the penalties it levies against individuals and businesses. Back in the day, it was easier to negotiate out of an FBAR Penalty and/or receive a waiver. These days, the IRS is pushing towards the maximum penalty, even in non-willful situations – which can easily reach six or seven figures in penalties — depending on the number of accounts, the amount of money and the facts and circumstances of the case.
You Can Still Safely Disclose…
Currently, the IRS has not eliminated the traditional OVDP (Offshore Voluntary Disclosure Program) or the Streamlined Program. In fact, with the Streamlined Domestic Program (SDOP), the IRS has not even increased the penalties since its inception back in July 2014 (modified Streamlined).
And, if you happen to qualify as non-willful and as a foreign resident, you may also qualify for a penalty waiver under the streamlined foreign offshore procedures.
…But for How Long
Here is where the problem starts: In recent months, higher ranking members of the IRS have put out feelers letting individuals in the tax compliance industry know that there are rumblings about getting rid or modifying the IRS Offshore Voluntary Disclosure programs…you can thank FATCA for that.
Under FATCA, more than 110 countries and 300,000 foreign financial institutions have agreed to voluntarily turned over information regarding US account holders in their country. Thus, in many situations, the IRS already has the information and may be pushing for a civil or criminal investigation.
The IRS Has Power to Collect Worldwide
Moreover, the IRS has the right to Lien, Levy, or criminally investigate you if there are sufficient facts. If you happen to travel extensively overseas, you’ll be happy to know that the IRS can also revoke or deny your passport. Moreover, the IRS has been working with many foreign countries, in which the foreign country tax authority is enforcing the debt on behalf of the IRS.
IRS Offshore Voluntary Disclosure
If you are considering entering into one of the IRS Offshore Voluntary Disclosure Programs, you may consider entering sooner as opposed to later to avoid missing the boat. With that said, you shouldn’t feel overly pressured into making a decision you are not comfortable with, and it should still be a decision you make on your own — after speaking with an experienced offshore voluntary disclosure lawyer.
OVDP Attorney Credentials
Experienced IRS Offshore Disclosure Representation is crucial for a successful OVDP disclosure. There are only a handful of Law Firms that focus their entire tax practice on IRS Offshore Voluntary Disclosure (We are one of them!). We have represented several hundred clients in OVDP, Streamlined and Offshore Disclosure.
You will want to make sure you use an OVDP Attorney who has:
- Litigation Experience
- IRS Audit Experience
- At Least 15-20 years of Attorney Experience
- An advanced Master’s of Tax Law Degree (LL.M.); and
- Either a CPA or Enrolled Agent (EA) license.
Why? Because you never know how the OVDP or Streamlined submission will go. Sometimes, a person is already under IRS investigation and may not know it. Then, when the person submits to OVDP they are rejected. In this type of situation, you need an Attorney with all the above required experience.
Using a CPA or Junior Attorney with no real experience, is not going to help (and you will then realize why the fees they charged were so low). We know this, because each year we receive many inquiries from clients seeking to retain our services after their initial OVDP or Streamlined junior tax attorney (without the experienced mentioned above) flubbed their submission and made numerous mistakes in the submission process.
Alternatively, once you are in OVDP, you may want to:
- Make an MTM Election
- Argue FAQ 55 Penalty Reductions
As a result, for this highly specialized area of law, you need an OVDP Attorney who is experienced specifically in OVDP, but also has the background and experience to fight on your behalf.
OVDP Attorney Fees
If you receive an OVDP Fee Quote from a CPA or Attorney that seems too Low…you should be careful.
That is not to say you should resign yourself to mortgaging your house for representation, but there are many CPAs and Attorneys who see a frightened human being as little more than a “Mark” or “Target.”
They will provide artificially low fee quotes to bait you in, only to request more money down-the-line. Most of the these Attorneys do not have real experience, and do not understand the comprehensive nature of an OVDP.
Golding & Golding, A PLC
At Golding & Golding, we have successfully handled numerous OVDP (Offshore Voluntary Disclosure Program) and IRS Streamlined Program applications for individuals and businesses around the globe with outstanding unreported foreign accounts ranging from $50,000.00 to nearly $40,000,000.00 in a single disclosure.
In order to assist you to better understand the distinction between the two different IRS offshore/foreign account disclosure programs, we are providing the following summary for your reference.
We Take OVDP Representation Very Seriously
The main takeaway from this article is that you understand the risks and pitfalls of entering either over OVDP or the Streamlined Offshore Disclosure Program unprepared.
We are passionate about representing individuals in offshore voluntary disclosure matters, and feel horrible when a client calls us after having hired an inexperienced Attorney or CPA who either did a sloppy job, charged them more money than they agreed upon, and/or is overall not providing the level of representation a person deserves.