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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law


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Current IRS Enforcement Priority: Foreign Account Disclosures

Posted on in IRS

foreign account disclosures, Chicago tax law attorneyThe IRS recently finished a four-year rollout of a law called FATCA: the Foreign Account Tax Compliance Act. Explicitly, it says "Americans being taxed on their total international income, all financial institutions are henceforth required to annually turn over all data they have on any American using their service. Failure to do so will lock an institution out of all American markets unless they instead choose to withhold 30 percent of that American's deposits for tax purposes." In other words, for global financial institutions, FATCA is one tax controversy you definitely want to avoid at all costs.

FATCA has had a transformative effect on the nature of international finance, creating a level of transparency almost unheard of previously. After Credit Suisse pled guilty to willful FATCA violations and paid a $2.6 billion fine, the rest of the banking world pretty much scrambled to line up and hand the IRS any and all financial data they had on Americans. It's been an extremely effective tool for the IRS to prevent individuals and corporations from hiding money overseas.

Personal Impact

Of course, that's the big picture. To an individual person, the net effect is there is now a very painful cost-benefit analysis to be performed if you have any meaningful amount of unreported cash or accounts offshore. Because almost every financial institution in the world is complying with FATCA, it's essentially only a matter of time before you're caught and penalties are assessed.

Fortunately, the IRS has also restarted the Offshore Voluntary Disclosure Program (OVDP), a program that allows both individuals and corporate entities to voluntarily report money held overseas in exchange for a (significant) reduction in penalties assessed in response to the discovery of those funds. Don't think the information they get from FATCA means you can skip filing your Foreign Bank and Accounts Report (FBAR); it's still a vital part of the reporting process along with several other forms.

 "Voluntary" Disclosure

If you choose not to participate in the OVDP and you end up getting examined by the IRS and found fraudulent, you can expect to pay massive penalties, including a fraud penalty of up to 75 percent of the unpaid tax, plus a failure-to-pay penalty, plus an inaccurate-underpayment penalty, plus failing-to-file penalties not just for the tax return itself, but for each and every one of the several forms that are part of the OVDP.

In short, the "V" in OVDP–"voluntary"–is not really all that accurate anymore. You can choose not to participate, but with FATCA in play, it is almost a sure thing that you will get caught eventually, so you might as well just settle down with your tax advisor and file your FBAR, so you can settle up with the IRS. If you have foreign bank accounts that meet the FBAR filing requirements and you have not reported them to the IRS, it is important to get this situation squared away as soon as possible. At the Chicago-Kent Tax Clinic, we offer low-cost assistance with FBAR compliance and all other types of IRS and Illinois tax issues from professionals with extensive experience working for the IRS and in private practice. For a free consultation with one of our skilled Chicago, Illinois tax attorneys, contact our office today at 312-906-5041.
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