Given how many small businesses we represent in civil and criminal tax issues we assist clients in Greenwich, Connecticut and elsewhere with foreign bank accounts to come into compliance from all over the world. Our clients have had accounts in Germany, Switzerland, Hong Kong, Israel, Sweden, Argentina, Italy, France, Canada, Mexico, to name a few. Now in July 2015 Brazil has joined the hundreds of other countries by implementing a Foreign Account Tax Compliance Act (“FATCA”) reporting system (Normative Ruling 1,571/15) so that the IRS and United States Department of Justice will received information on United States individuals and businesses that have accounts in Brazil.
Though most reporting will begin in December 2015, some institutions will begin as early as August 2015. It is therefore critical that folks with accounts in Brazil who have not yet come forward and cleared up their foreign account compliance do so as-soon-as possible.
Options for Resolving Foreign Bank Account Compliance Issues
For taxpayers looking to come into foreign account compliance there are three options for resolving the issue:
The Offshore Voluntary Disclosure Program (“OVDP”): This is the IRS program that taxpayers who willfully failed to disclose foreign accounts and unreported income must use. OVDP requires the taxpayer to amend 8 years of income tax returns, file 8 years of Foreign Account forms (FinCen Form 114) and pay a miscellaneous FBAR penalty of 27.5%, plus the unreported income tax, interest and accuracy penalty. The benefits for people who willfully evaded their reporting responsibility are avoiding criminal prosecution and much more draconian penalties.
The Streamlined Compliance Program: for taxpayers who failed to comply due to negligence and not willfulness, the streamlined compliance program is a much easier way for taxpayers to come into foreign account compliance. The taxpayer merely amends three years of income tax returns, files six years of foreign account reports and pays a miscellaneous 5% FBAR penalty. If the taxpayer is a non-resident there is no FBAR penalty. Simply pay the tax and interest on the unreported income.
Quiet Disclosure of the Foreign Accounts: A quiet disclosure is where the taxpayer does not do either of the government programs but merely files the amended income tax returns and files the FBAR forms. In doing so there is a chance that the IRS does not pick-up on the filing, or if it does it does not pursue it, hence saving the taxpayer from paying the FBAR penalty. The risk, especially with electronic filing, is that the IRS will note the quiet disclosure and examine the taxpayer, increasing the cost significantly. In addition, a quiet disclosure is not a disclosure for criminal prosecution purposes, and there is no guarantee of a 5% or even 27.5% FBAR penalty. The penalties could be as much as 50% of the highest balance in the account per year! Quiet disclosing is therefore a fairly risky business.
What if all income was properly reported (including the foreign bank interest) but the taxpayer simply failed to file the FBARs? No problem. The taxpayer does not even have to do a program. The Delinquent Foreign Bank Account Procedures simply state the taxpayer should file the 6 years of missing FBARs and that is it. No program, no legal fees, no FBAR penalty.
If you are in Greenwich, Connecticut, New York or elsewhere and have a foreign bank account disclosure issue (with Brazil or any other country) and you wish to discuss it please feel free to contact me at (203) 285-8545 or email@example.com.
Eric L. Green, Esq
Green & Sklarz LLC
243 Tresser Boulevard, 17th Floor
Stamford, CT 06902
Ph. (203) 285-8545
Fax (203) 286-1311
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