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No need to put off compliance with foreign asset rules, IRS says p3

We're continuing our discussion from our last post. The subject is filing disclosures of foreign assets to the IRS. The agency recently modified the rules of the offshore voluntary compliance program and added a "streamlined" process for taxpayers opting out of the protections offered by the OVCP.

It is important to note, too, that the reporting procedures we are talking about here only apply to taxpayers who have not reported foreign assets with their regular tax returns. The best way to avoid fines and jail time is really to comply with the disclosure rule on time every year. There are a couple of forms that need to be completed; the penalties are actually tied to failing to complete those forms honestly and in a timely manner.

We were talking about one of the advantages of reporting now under OVCP. Our hypothetical taxpayer, Bill, has decided to report a foreign account he has held for some time; the account is worth $100,000, and Bill wants to take advantage of the reduced penalty. While the amnesty is in effect -- and it could go away at any time -- Bob's fine is just 27.5 percent, or $27,500. By disclosing under OVCP now, he has saved himself a chunk of money, almost half the 55 percent normally imposed. Perhaps more importantly, he has also avoided criminal liability.

Say, however, the IRS or the Department of Justice launches an investigation into Bob's Swiss bank before he starts the OVCP process, and the investigation goes public. Bob's penalty rolls back to the full 50 percent. The IRS, it seems, appreciates an honest desire to come clean.

The amnesty program has paid off for the IRS. Foreign asset disclosures nearly doubled between 2007 and 2010.

Taxpayers not quite so worried about avoiding stiff penalties and criminal liability may opt for another disclosure method. We'll discuss that and how the IRS can find out about undisclosed accounts in our next post.

Source: Forbes, "IRS Offers New Incentives To Disclose Foreign Bank Accounts,"  Deborah L. Jacobs, June 18, 2014

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