IRS announces 'carrot and stick' for foreign bank accounts
On June 18, 2014 the IRS issued a press release, IR-2014-73, regarding modifications to the 2012 Offshore Voluntary Disclosure Program (OVDP). In addition to this press release the IRS on the same date issued a statement by IRS Commisioner John Koskinen.
Starting July 1, 2014, thousands (1,000's) of foreign financial institutions will begin to report to the IRS foreign accounts held by U.S. citizens. This July 1, 2014 reporting requirement is part of the Foreign Account Tax Compliance Act (FATCA).
These modifications in particular reference U.S. taxpayers whose failure to disclose their offshore assets was non-willful. For U.S. taxpayers residing in the United States, "the only penalty will be a miscellaneous offshore penalty equal to 5% of the foreign financial assets that gave rise to the tax compliance issue."
The IRS is almost doubling the penalty from 27.5% to 50%, for taxpayers not disclosing before it becomes public that the taxpayer holds an account with an offshore financial institution!
The IRS is working with the U.S. Department of Justice to investigate foreign financial institutions that have assisted U.S. taxpayers in avoiding tax filing and paying obligations.
Quoting IRS Commissioner John Koskinen: "We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts." "For anyone who wants to come into compliance but isn't sure what to do, I recommend taking to a tax professional."