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

Back in the day -- please excuse us if we overuse the expression, but a discussion of the movie "The Wolf of Wall Street" reminded us that there are adults out in the world that were born after the "greed is good" 1980s, and that made us strangely nostalgic. But, back in the day, if you bought something at Macy's that went on sale the next day, you could take the receipt back to the store for a refund of the difference between what you paid and the sale price of the item. It was a customer service thing -- remember customer service? -- a kind of perk for being a god customer with bad timing.

We are not sure that the IRS ever followed the example, but the agency has opened itself up to a slew of inquiries about possible refunds with its recent release of revised rules for reporting foreign assets. The new process is both less complicated and less expensive, so taxpayers who followed the old rule in their 2013 returns are wondering if the IRS will make it up to them. Why, they may be thinking, should I be penalized for filing my return on time? IRS officials have not addressed the issue yet.

The rule in question applies to the offshore voluntary compliance program, or the OVCP. This is by no means the first program tweak on record, but the IRS hopes that the new streamlined process will encourage taxpayers to report income from foreign sources.

Right now, the IRS taxes U.S. citizens, resident aliens and qualifying nonresident aliens for all reported income from all sources, including foreign accounts. The tax rate does not change if the assets are in foreign banks.

If a taxpayer does not report that he holds offshore accounts, or if the taxpayer fails to pay taxes due on that income, there can be serious consequences. Both civil penalties, determined by a number of factors, and criminal charges may apply.

While the process is streamlined, it is still a little complicated. We'll explain more 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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