Understanding the foreign account disclosure trap

Several years ago, it was simple to hide foreign accounts from the IRS. However, that has changed because of various new information sharing agreements the IRS has created with other countries. In fact, the IRS already has the information on where these accounts are and who they belong to, they are just too occupied sorting through the documents to find the time to prosecute everybody. With that in mind the IRS has promoted its foreign account disclosure. The present foreign account disclosure is the third version, and with each new edition, the penalties rise. foreign account disclosure currently does not expire. But the terms can be changed at any time.. rnThis is the way the program works: rnA taxpayer finds a tax lawyer to review the specifics of the case and make certain a disclosure into the foreign account disclosure is appropriate. The tax attorney then mails a letter in and works to reconcile 8 years of returns to incorporate unreported income and absent FBARs. If they are capable to, the taxpayer then has to pay taxes and any interest that is owed. The taxpayer now has two options. They could accept the 27.5% penalty on the highest account value over the last 8 years by agreeing to the standard penalty structure. If the taxpayer purposely evaded taxes, this the most appropriate choice. rnThe supplementary alternative for the taxpayer is to choose to fight for lesser penalties instead of agreeing to the standard penalty structure. This will usually come out to a 5% penalty on the highest account value. If the account is worth less than $75,000, only a 12.5% penalty will be charged. rnRegardless of your choice, the taxpayer's attorney will need to ensure that they taxpayer's claimed income matches their bank account by doing a mini audit. An administrative appeal is always an option if the taxpayer does not want to go with the penalty amount and opts-out. Then, if the taxpayer is discontented with those outcomes, they can bring the case to US tax court. However, while this is extremely unlikely, the US Supreme Court could wind up as the final decider of the penalty amount.