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What Offshore Penalties Can You Face if You Fail to Disclose Offshore Assets?

In today’s hyper-connected global economy through a vast array of reasons why people have offshore assets and accounts. For some people, having foreign investments and foreign accounts is a means of diversifying their portfolio and insulating themselves from risk. For other people who travel frequently, having offshore bank accounts is a matter of convenience. For still other individuals, remittances to family in other countries are facilitated by foreign accounts. Finally, some people may even have foreign retirement accounts that are viewed under U.S. law as far and trusts and must be reported.

If you have an account and have not reported as part of a FACTA or FBAR filing, you run the risk of facing serious penalties. In many cases, the penalties are harsh fines that can potentially exceed the original balance of the account. In cases where the conduct was willful or part of a larger scheme to avoid taxes, criminal tax evasion charges are possible.

How Does the Government Know You Failed to Report Offshore Assets?

Many people may assume that the government will take little interest in their offshore finances, but this assumption can lead to terrible results. The simple fact of the matter is the IRS and government have invested significant resources in identifying Americans who fail to disclose far and accounts. Following the passage of FACTA, the U.S. government negotiated international information-sharing agreements with an array of Nations. Through these agreements, reciprocal tax and financial information can be shared. Currently, more than 100 nations have agreed to international agreements of this type. This means that even sophisticated use of corporate entities and trusts 10 and most likely will be traced back to US taxpayers.

Aside from these information sharing agreements, the Swiss Bank Program is also an important source of information for the IRS and the Department of Justice. Through the Swiss Bank Program, the US government receives information from not only banks in Switzerland, but also the foreign subsidiaries of Swiss banks. While many Americans still view Switzerland as a haven of banking secrecy, this view is dangerously out of date. Reliance on Swiss banking privacy is misplaced and results in identification and subsequent prosecution.

When Penalties Can You Face if You Fail to File FBAR? FATCA?

In situations where criminal conduct is not at issue, FACTA penalties are already harsh. Initial failure to disclose under FATCA  can be punished with a penalty of up to $10,000. Continued non-compliance and failure to report the covered foreign account can result in additional penalties of up to $50,000. Additionally, any underpayment of tax that occurred due to non-compliance with FATCA Is subject to a potential substantial understatement penalty of up to 40%.

Penalties are similarly harsh for failure to disclose under FBAR.  An initial failure to disclose under FBAR is subject to a penalty of up to $10,000. However, when the non-disclosure is believed to be a product of willfulness — and intentional or voluntary disregard of the known legal duty — penalties can be even more severe. Penalties where willfulness is a concern can reach up to 50% of the account balance.

When Can You Face Criminal Penalties for the Non-Disclosure of Foreign Accounts?

Referral for criminal penalties due to the failure to comply with FBAR or FATCA and other laws is typically reserved for situations where willfulness present and there is an illegal scheme or pattern of illegal behavior. The IRS and Department of Justice have an array of penalties they can charge a taxpayer with these penalties include tax evasion under IRC §7201, Filing a false return under IRC § 7206(1), conspiracy under 18 U.S.C. §371, and a number of other statutes authorizing criminal penalties. Should the IRS and Department of Justice C criminal penalties civil fines and penalties described above will also still apply.

Work With a Tax Attorney if You Suspect Past Offshore Noncompliance

If you suspect that you may have failed to disclose certain far and accounts as required by law, you do have options to correct the error and chief compliance. Two options to fix offshore disclosure problems are Offshore Voluntary Disclosure Program (OVDP) and streamlined disclosure. However, the taxpayer should not take action before speaking to a tax attorney because a botched voluntary disclosure or disclosing under the wrong program can potentially provide the government evidence of your noncompliance for a subsequent prosecution.

The strategic and aggressive attorneys of the NewPoint Law Group, LLP, can assist with tax compliance problems due to FBAR and FATCA mistakes. To schedule a confidential consultation, call 800-358-0305 or contact us online.

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