Tax Controversies Discussion

Offshore Financial Accounts and Assets

Taxpayers with offshore bank accounts may find themselves the target of an investigation by the Internal Revenue Service (IRS) for failure to report their foreign accounts and the income they produce.  In recent years, the IRS has stepped up its efforts to locate unreported income and enforce tax payment.  Whether you have several years of unreported foreign income or just need assistance in becoming compliant with the offshore account reporting requirements, The Mayhall Law Firm can help you navigate the myriad of reporting and filing requirements related to offshore financial accounts and assets.

Unfiled tax returns and unreported income

U.S. citizens and resident aliens are required to report all of their income, regardless of whether the income is U.S. or foreign sourced. While some taxpayers choose to ignore this requirement, many taxpayers are simply unaware that they must include their foreign income on their income tax returns. Failure to report foreign income can result in costly civil and criminal penalties. The Mayhall Law Firm will assist you with the filing of past due, amended and/or original tax returns that report your foreign sourced income.

In addition to reporting worldwide income, U.S. citizens, resident aliens and nonresident aliens who elect to be treated as resident aliens for tax purposes may be required to file IRS Form 8938, Statement of Specified Financial Assets if they own certain foreign financial assets that exceed a threshold amount specified by the IRS may. Form 8938 must be filed with the taxpayer’s income tax return, and the taxpayer can face substantial failure to file penalties, ranging from $10,000 to $50,000. The Mayhall Law Firm can help you determine whether you are required to file Form 8938, and help you minimize or avoid these penalties.

FBAR compliance

U.S. taxpayers that have a financial interest in or signature authority over a foreign financial account, including bank accounts, brokerage accounts, must also file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”).  The U.S. Treasury Department strictly enforces the FBAR filing requirement.  Due by June 30th of each year, the Treasury Department affords no extension of time to file the FBAR and imposes hefty criminal and civil penalties for each FBAR violation.  Many taxpayers are surprised to learn that an FBAR violation occurs for every account that the taxpayer is required to report, rather than for each year for which an FBAR is not filed.  The Mayhall Law Firm counsels clients on their FBAR reporting requirements, the mitigation of failure to file penalties, and assists with the preparation and filing the clients’ FBAR(s).

Offshore Voluntary Disclosure

In connection with its aggressive efforts to detect and prosecute offshore tax avoidance, the IRS is currently allowing taxpayers who report previously undisclosed financial accounts through its Offshore Voluntary Disclosure Program (“OVDP”). Taxpayers who participate in the OVDP are required to report foreign income and offshore assets through the filing of original and /or amended tax returns as well as IRS Form 8938 and FBARs, if applicable. The IRS has represented that taxpayers who meet the requirements of the OVDP will not face criminal prosecution. However, OVDP participants will be subject to an offshore penalty in the amount of 27.5% of the highest aggregate balance of offshore accounts and assets. Making an offshore voluntary disclosure can be complicated and burdensome without the guidance of an experienced attorney. Let the Mayhall Law Firm facilitate the process of preparing and filing the required OVDP documents.

While participation in the OVDP is beneficial to most taxpayers, each taxpayer’s situation is different and an exhaustive cost-benefit analysis must be made to determine whether participation in the OVDP is in each taxpayer’s best interest. The Mayhall Law Firm will analyze and advise on whether the OVDP or an alternative method of disclosure is the best option for you.