Bay Area Estate And Tax Planning Law Firm

No need to put off compliance with foreign asset rules, IRS says p2

On Behalf of | Jun 27, 2014 | Uncategorized |

Some people have an ear for languages. They can visit a foreign country and be conversant in a matter of days. For others, foreign languages remain a mystery, if not a misery. Those French, as a friend of ours used to say, have a different word for everything.

Tax law and IRS rules are the same way. Some people just have a knack, while others struggle. At times, a court will look at how conversant someone is in tax-speak to determine if a reporting mistake was accidental or intentional. Intentional is bad in almost every case, but ignorance of the law is often not an excuse for a mistake. That is why we try to explain rule changes — for the federal government or just here in California — to our readers. The most recent rule change relates to foreign asset reporting.

As we mentioned in our last post, there can be substantial criminal and civil penalties for a taxpayer who has intentionally not reported assets in a foreign account. At this time, the offshore voluntary compliance program is reducing those penalties — a kind of tax amnesty — in an effort to encourage taxpayers to come forward. Normally, the taxpayer would be fined 50 percent of the account’s highest balance over the previous eight years. For the time being, that penalty is reduced to 27.5 percent.

For example, Bob has a Swiss bank account that he has deliberately not reported on his tax returns for the past 20 years. He wants to disclose his account before the hammer falls — we’ll discuss that later — so he files through the OVDP. The account has just $100,000 in it today, but at one point between 2005 and 2013 the balance peaked at $1 million. Without the amnesty, the penalty would be half that amount, or $500,000. It makes no difference that the account is worth $100,000 now.

But wait — there’s more. We’ll continue in our next post.

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