OVDP and The Streamlined Filing Compliance Procedures
As you may already know, U.S. citizens and lawful permanent resident “green card holders” are subject to tax on their worldwide income regardless of their country of residence. If you’re living and working in a higher-tax jurisdiction, it may seem that there is no cause of concern since you could easily claim the Foreign Tax Credit (FTC) for taxes paid in the other country to offset all of your U.S. tax liability. However, that’s incorrect. The real concern is not the tax exposure; the real concern is the penalties for not disclosing foreign bank accounts and foreign assets.
Applicable to all U.S. citizens and green card holders worldwide is the Financial Crimes and Enforcement Network (FinCEN) Form 114; more commonly known as the Foreign Bank Account Report (FBAR). Under U.S. law, if the cumulative balance of all of your non-U.S. financial accounts (checking/saving, investment, etc.), when converted to U.S. dollars, exceeds $10,000 USD in the aggregate, you are required to file an FBAR. The penalty for negligent non-filing by your tax deadline including extensions is a whopping $10,000 per year with a six-year statute of limitation, which means they can assess penalties going six years back. That means the average innocent non-compliant individual, such as yourself, is currently exposed to $60,000 in FBAR penalties. And if the IRS has reason to believe the failure to file was intentional, the annual penalty increases to an astonishing $100,000, which means an intentionally noncompliant individual over six years is exposed to $600,000 in potential penalties. And, as you likely know, the Foreign Account Tax Compliance Act (FATCA) Agreements that the U.S. has signed with nearly every country in the world, including Switzerland, the Cayman Islands, the British Virgin Islands, and Panama, will allow the IRS to discover the financial accounts of U.S. citizens overseas. Thankfully, the IRS has a new amnesty program for “non-willful” taxpayers called the Streamlined Filing Compliance Program. By simply filing 3 years of U.S. federal income tax returns and 6 years of FBARS, you will be deemed to be back in total compliance with all of your U.S. tax filing obligations. All prior years of noncompliance are effectively ignored and forgiven.
The IRS has announced that they are terminating the Offshore Voluntary Disclosure Program on September 28, 2018. Luckily for you, they are not yet closing the Streamlined Filing Compliance Program, but there is a rumor that may be closing it soon, so don’t let this window of opportunity pass you by.
Our law firm can get you back into compliance with absolutely zero exposure to U.S. tax.
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