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IRS BOTH REDUCES AND INCREASES THE PENALTY FOR NONDISCLOSURE OF FOREIGN ACCOUNTS

The IRS recently announced a new streamlined filing compliance procedure for certain taxpayers who failed to report and pay all tax due with respect to a foreign financial account.  Under the new procedure which became effective on July 1, 2014,  those taxpayers who weren’t willfully trying to hide money from U.S. tax authorities will qualify for a one-time penalty equal to 5% of the foreign account’s highest value. 

 

Under the existing Offshore Voluntary Disclosure Program (“OVDP”), a taxpayer is required to pay a penalty equal to 27.5% of the highest value of the account during the previous 8 years, which penalty is increased to 50% if the taxpayer’s bank is under public investigation by the U.S. government.  Major banks such as UBS AG, Credit Suisse AG, Credit Suisse Fides, Clariden Leu Ltd., and Wegelin & Co. are currently under such an investigation.

 

If the taxpayer neither enters the OVDP nor comes forward and qualifies on the basis of the 5% one-time penalty, the applicable penalty is 50% of the highest account value for each year of nondisclosure. 

 

While the new procedure may offer a streamlined compliance procedure and significantly lighter penalties (5% vs. 27.5%), it is important to understand that it is only available where the taxpayer’s nondisclosure was not “willful.”  Many tax professionals believe that a taxpayer’s nondisclosure would be viewed as willful if the taxpayer answered “no” to Line 7a of Schedule B of IRS Form 1040, which asks “[a]t any time during [the tax year] did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country?”

 

-Barry Engel, Esq.

-Arnold Gutterberg, Paralegal

NEW UNIFORM LAW RECOGNIZES SUBSTANTIVE DIFFERENCES...
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SOUTHPAC TRUST OFFSHORE PLANNING INSTITUTE CONFERENCE 2017, “Asset Protection in a Changing World” (31 May 2017) and “Questions & Answer Panel on Industry Challenges to Asset Protection Structures” (1 June 2017)
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Barry S. Engel
Email: info@engelreiman.com