Q: What is best approach for dealing with undeclared overseas assets?
Have been accepted into IRS amnesty program but penalty is 20% of total assets while my tax liability is very small. Am considering opting out and pleading ignorance of statute, thus negligence. Is this wise?
A:
The Hiring Incentives to Restore Employment Act ("HIRE Act") requires additional reporting for U.S. persons and U.S. entities that have an interest in a specified foreign financial asset if the aggregate value of all such assets exceeds $50,000. If you own directly (or indirectly have effective control over) a foreign asset you should disclose the existence of the asset in order to avoid some fairly hefty penalties.
The penalty for failing to disclose is $10,000. If, after the IRS notifies the taxpayer of a failure to report, the taxpayer is subject to an additional penalty of $10,000 for each 30-day period thereafter.
The HIRE Act also has a six-year statute of limitations for assessment of tax on understatements of income attributable to foreign financial assets if the amount omitted from gross income is in excess of $5,000 and attributable to reporting under the new Foreign Financial Assets disclosure provisions (ignoring the $50,000 threshold).
If you have already been accepted into the amnesty program it seems to make sense to follow through with it. The HIRE Act also opens your entire return up to audit for under-reporting a foreign asset. You should really consult with an experienced tax attorney and determine whether withdrawing from the amnesty program and demanding trial is worth the time, expense, and heartache given that you've already taken advantage of the amnesty program.
The foregoing is intended for informational purposes only and should not be construed as legal advice as no attorney client relationship exists in the context of an open forum discussion. www.ruskcountylaw.com
A: I can guess from the date of your question that you were referring to Report of Foreign Bank & Financial Accounts (known as FBAR), meaning such accounts with value in excess of $10,000, because the Foreign Account Tax Compliance Act (FATCA) became effective 2011. Unless you have a reasonable cause, the case may have become a criminal one after July 1 of the following year, and I would strongly suggest a tax attorney knowledge in Offshore Voluntary Disclosure Initiative (OVDI) then and Offshore Voluntary Disclosure Program (OVDP) now. Good luck.
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