Up until June 18, 2014, U.S. persons that had failed to file the FBAR in prior years had only one sanctioned method to become compliant, i.e., the Offshore Voluntary Disclosure Program ("OVDP"). Unsanctioned methods to becoming compliant such as "quiet disclosures" exposed taxpayers to considerable risk.
While the OVDP offered a path for compliance, the penalties for doing so were considered by many observers to be unjustly punitive. In the vast majority of cases, taxpayers were assessed a penalty of 27.5% of the account(s) highest balance. Until now, no distinction was made as to the taxpayer's "state of mind" in respect to their non-compliance. In other words, the person who opened a bank account for the sole purpose of evading U.S. taxes was assessed the same penalty as the person who surely would have filed the FBAR had they been aware of their obligation to do so.
The June 18, 2014, announcement by the IRS of a new method for compliance is great news for taxpayers whose failure to file was non-willful. More details are sure to come but, in short, a non-willful FBAR violator can expect to receive a 5% penalty for their FBAR non-compliance and face no accuracy related for previously unreported tax due from their foreign accounts.
In addition, taxpayers that made "quiet disclosures" and have been living in fear of being discovered, are also eligible for the domestic Streamlined Compliance Program.
For more information and to discuss whether or not the new compliance option is appropriate for your situation, please contact David for a consultation.
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