Foreign Accounts Compliance
The Internal Revenue Service and Department of Justice continue to take US taxpayers to task on matters involving foreign accounts compliance. Whether it is the Second Circuit Court of Appeals issuing double penalties for a single-owner of a foreign trust (US v. Wilson) or the Fifth Circuit issuing per account/per year FBAR penalties (US v. Bittner), foreign accounts compliance enforcement has become something of the wild wild west. Foreign accounts compliance encompasses more than just foreign bank account reporting and depending on the specific type of asset and aggregate value, there may be several reporting requirements in a single year. Let’s take a brief introductory look at 5-key facts about foreign accounts compliance.
FBAR Is Not the Only Form
When people think of foreign account reporting, the first form they are (usually) familiar with is the FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114). While the FBAR is the most common of the foreign account reporting forms, it is only one of many different types of international information reporting forms. So, even if the Taxpayer is required to file the FBAR, it is important to note that there are many other forms that may be required as well.
Some Assets Reported on Multiple Forms
You would think (logically) that filing a form to report a foreign asset would satisfy the IRS requirements for reporting that asset, right? Unfortunately, that is not always the case. Sometimes a single asset must be reported on multiple forms. For example, it is quite common for an account to have to be reported on the FBAR, along with Form 8938 (Foreign Account Tax Compliance Act aka FATCA) in the same year.
Split Circuits on Penalty Enforcement
Courts across the nation are split on how international information reporting penalties (aka “assessable penalties’) should be enforced. For example, in some jurisdictions, courts lean toward limiting non-willful foreign account penalties to a $10,000 per year total penalty ($10,000 adjusts for inflation). Meanwhile, other courts lean towards a per violation, per year penalty – which in some cases where a single taxpayer may have missed reporting several foreign accounts (although they are all listed on a single form), may get assessed penalties for each missed account and not just each missed annual form.
Foreign Accounts May Include Crypto
The US Government has been taking a hard line on matters involving cryptocurrency. Whether or not crypto is reportable is still up for debate, but based on the proposed regulations and overall enforcement initiatives introduced by the US Government, it may be better to err on the side of caution and report crypto accounts for FBAR, FATCA, etc.
IRS Can Terminate Offshore Amnesty at Any Time
The IRS offers various amnesty programs to assist taxpayers with safely getting into compliance. In recent years, the IRS has modified certain programs such as DIIRSP (which no longer guarantees a penalty waiver) and terminated other programs (OVDP was terminated in 9/2018). While the traditional VDP program was expanded to take the place of OVDP, it is usually not as taxpayer-friendly as OVDP was, especially regarding the penalty aspect of the submission.
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and compliance.
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