The Civil Penalties of ‘Offshore’ Tax Law Violations
Since 2003, the Internal Revenue Service (IRS) has been taking measures to improve tax law enforcement in the United States. In fact it has initiated the Voluntary Disclosure practice and the Offshore Volunteer Compliance Initiative (OVCI). Nevertheless, there are still people who have not yet gotten right with the government. If they are eligible for voluntary disclosure but did not come in under it, they would face certain civil penalties should the IRS find them. There are several civil penalties imposed depending on the case, but the most notable ones are the following:
Non-filing of FBARs
An FBAR, Form TD F 90-22 or Report of Foreign Bank and Financial Accounts, is an annual report filed with the IRS of the list of financial accounts maintained with an institution located in a foreign country with which a taxpayer has direct and indirect financial interest or has signature authority over. These financial accounts should exceed $10,000 in aggregate value at any time of any calendar year. Willful failure to file the FBAR can amount up to a penalty of 50 percent the total balance of the account. Penalty for non-willful violations would amount to not more than $10,000.
Failure to Report Various Information Returns
Taxpayers with ownership interests in foreign trusts by United States persons; U.S. persons who are officers, directors, and shareholders in certain foreign corporations; and taxpayers with transactions with 25-percent foreign-owned corporation or foreign corporations engaged in U.S. trade or business are obliged to report such information to the IRS. Penalties for failure to file or for filing incomplete information returns can come to as high as $50,000 per return with an additional $10,000 for each month the failure continues.
Withholding Information Returns on Foreign Partnerships
Any U.S. person with interests in and transactions with foreign partnerships must report such information including transfers of property to the partnerships, and acquisitions, dispositions and changes in foreign partnership interests. The fines can be staggering: $10,000 for failure to file each return plus a monthly of $10,000 for every month of failure to report, up to a maximum of $50,000 per return, and 10% the value of transferred property not reported up to $100,000.
This article is intended solely to offer general information on the subject. None of the content should be considered as legal advice.
For legal insights on offshore disclosure, contact the Thorn Law Group, experienced tax attorneys in the greater Washington, D.C. area.
