Disclosure of Foreign Accounts and Assets
Combating offshore tax evasion has become a high priority for the federal government and a major focus of the IRS’s enforcement efforts. The Department of Justice has supported the IRS in a public campaign to identify individuals with accounts at certain foreign financial institutions. Developments in the information exchange between governments have helped the discovery process.
Report of Foreign Bank and Financial Accounts (FBAR) Program
FBAR applies to each U.S. person who has a financial interest in or signature or other authority over foreign financial accounts with total value that exceeds $10,000 at any time during the year. An FBAR filer must disclose the existence of such accounts by filing the FBAR (FinCEN Form 114) with the Department of Treasury by June 30 each year. The term “U.S. person” broadly includes U.S. citizens, resident aliens, trusts, estates, and certain domestic entities.
Foreign Account Tax Compliance Act (FATCA)
U.S. citizens, resident aliens, and certain non-U.S. taxpayers must report information about certain foreign financial accounts and offshore assets on the Form 8938 and attach it to their annual income tax returns. The reporting requirement applies to accounts with total value exceeding $50,000 at year end or exceeding $75,000 at any time during the year.
Offshore Voluntary Disclosure Programs
Taxpayers who do not report their offshore accounts and assets may face serious civil and criminal penalties, including fines, probation, and prison sentences.
In 2009 and 2011, the IRS established Offshore Voluntary Disclosure Programs to allow for reduced civil monetary penalties for taxpayers coming forward voluntarily with unreported offshore accounts and assets. After these two very successful programs expired, the IRS introduced a new program in 2012. In 2014, the IRS modified the terms of the 2012 program. While the 2014 program has no application deadlines, its penalties and eligibility terms may change without notice.
The IRS has announced that it will expand its audits of payments from U.S. individuals and U.S. businesses to individuals and businesses abroad to ensure proper reporting and tax withholding.
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