If you have come to this site it is assumed you are looking for answers to offshore tax compliance problems or perhaps looking for the right question to ask. To start, the vast majority of these problems are not remotely criminal. Too many lawyers have been scaring the daylights out of taxpayers and charging accordingly. The purpose of this website is to help educate taxpayers with offshore compliance issues (FBAR and beyond).
One of the more important developments here is the coming to light of the stories of those with offshore compliance problems. There are literally thousands of US citizens living abroad with few ties to the US. For many of these individuals US tax compliance was never a thought, for many others it simply got buried in the complexity of day to day life. Likewise many US tax residents who have moved here from abroad have very innocent fact patterns.
Given the magnitude and diversity of the offshore compliance problem, the inherent complexity of the relevant law, it is reasonable to conclude that such a large number should not be labeled as “negligent”. Having faced the stress of correcting these problems and in many cases paying substantial professional fees, future compliance can reasonably be assured. Future compliance should be the path to receiving a warning letter.
The factual background needs to juxtaposed against the Internal Revenue Manual sections on FBAR penalties which can be found at the link below:
Official IRS Website
What is the process?
This websites main purpose is to provide information about FBAR. We also provide information about other issues that our law firm deals with, such as international retirement planning and renunciation of US citizenship.
regarding other cross-border issues can be found at our companion website www.expattaxandlaw.com.
What is our approach?
The vast majority of FBAR related issues are not remotely criminal . Our goal is to get you into compliance without breaking the bank.
- OVDI is not appropriate for most with innocent FBAR related problems, it just generates additional legal fees. Too many lawyers have been using the cloud of criminal issues to justify large retainers. The 27.5% penalty is simply out of line for many with problems here especially when one considers the IRS own guidance set out in the IRM with respect to FBAR penalties.
- OVDI followed by “opt outs” has involved extensive IRS review.
- The “Streamlined” procedure makes sense for many, it has now been liberalized to allow greater tax liability but the boundary line between high risk and low risk remains uncertain. Therefore, the extent of review is also uncertain.
- Corrective filings (aka “quiet disclosure”) remains a viable option for many with good “reasonable cause” arguments. You should always assume these filings will be looked at. Do not assume they will “fly under the radar”.
- For most of my clients, it comes down to becoming compliant in the most efficient manner.
- The bottom line is: how will the IRS exercise “discretion” when it comes to FBAR penalties? Unless there are unfavorable facts present (substantial unreported income, illegal income or intentionally hidden assets) or the “reasonable cause arguments” look weak, advisors should argue for no penalty and a warning letter.
From the sheer number of taxpayers with FBAR related compliance problems, a reasonable person would infer that what we have is a systemic problem rather that anything intentional or negligent .
US residents – the IRS appears to be adopting a more lenient attitude to USC living abroad (that is also where there has been extensive lobbying effort). However, many resident in the US have sympathetic stories especially technology professionals from India. Thousands have financial accounts back in India, typically to take care of elderly parents. This certainly does not fit the paradigm of the wealthy with Swiss bank accounts.
Data available so far indicates that the average FBAR penalty paid is totally out of proportion to the actual tax liability that ends up being owed. Those whose facts closely resemble an intent to evade tax actually end up paying a lower proportion of FBAR penalty to tax owed. For example, the civil tax fraud penalty (a very serious one, just short of a criminal issue) is 75% of the related tax liability. That should be compared to the FBAR penalties that are potentially several multiples (say 300%, 500%) of the additional tax liability. That is wrong and lawyers should be arguing for significantly reduced FBAR penalties or just warning letters.
The fact remains that examiners and their superiors can do significant damage to these innocent taxpayers. The good news is that the IRS is becoming abundantly aware of the number of let’s say slightly negligent taxpayers…as opposed to their original views that these individuals were all potential tax frauds. Hopefully a cultural shift is taking place at the IRS. The liberalization of the “Streamlined” procedure is a positive step, but many improvement remains.
A final note, for many the calculation of their US income tax remains a fundamental problem. This is due to complexity and gray areas related to PFIC (foreign mutual funds) and foreign retirement plans (Forms 3520 and 3520-A).