(JD Supra) How many U.S. taxpayers and expatriates may need to file offshore disclosures and FBARs with the IRS? Should those who have not yet filed a disclosure application utilize the VDP (Voluntary Disclosure Program) or a streamlined application through the Streamlined Filing Compliance Procedures or SFCP? Many U.S. taxpayers have taken a hopeful position as they attempt to understand the core issues of “willful” failure to report or under-reporting offshore or foreign income versus “non-willful” conduct. The risks of filing a “quiet disclosure” (filing an updated return and hoping the IRS doesn’t notice) or a streamlined application are substantial, and these decisions should not be taken lightly.
The IRS issued a strong warning to those with offshore bank accounts, investments, assets, and foreign corporations or trusts:
Come into compliance with FinCEN Form 114 (FBAR) and FATCA requirements, as well as IRS forms such as the 8938, or face criminal tax evasion charges and the steepest taxation, penalties, and interest under U.S. tax law.
The Wall Street Journal recently estimated that 7.6 million U.S. citizens live abroad, and millions more have offshore assets, investment accounts, and bank accounts. Expatriates should be well aware of the “Foreign Earned Income Exclusion” (currently up to $130,000 for 2025), which may exempt them from paying taxes to the IRS on earnings below that threshold. However, they are still required to file a tax return. This includes the requirement to complete accurate FBAR and other required offshore disclosures.
The key question is this:
If you or your entity have offshore accounts and investments and have failed to file the required and necessary updated FBARs and voluntary disclosures, what happens to those who fail to comply?
If you are a U.S. taxpayer and have offshore bank accounts, investments, assets, or own any interest in a foreign corporation or foreign trust, the time is now to come into compliance with the IRS and FBAR reporting requirements. The IRS has developed sophisticated Artificial Intelligence (AI) applications to sift through troves of valuable offshore information provided directly to the agency from Foreign Financial Institutions (FFIs), such as banks, investment houses, retirement plans, and other portfolios regarding the accounts, balances and even transactions of U.S. taxpayers directly to the agency. The IRS has provided ample notice over the years and is pursuing criminal tax evasion charges (and, in particularly egregious cases, prison sentences) for those who refuse to comply. Failure to comply with offshore disclosures required by FinCEN and the IRS also exposes U.S. taxpayers to fines of up to 50% of the highest balance of each account or aggregated accounts each year, or $100,000, whichever is higher. It doesn’t matter how much is in the account today, or at the end of the tax year.
Contact an experienced international tax attorney to discuss offshore disclosures, FinCEN FBAR requirements, IRS Form 8938, and other offshore reporting requirements, as well as the impact of willful or non-willful behavior upon your decisions and available options. Come into compliance and avoid the wrath and fury of the IRS and the tremendous financial impact this could have on your life.
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