March 4


FBARs and Failure to Disclose Income

By Jason Kovan

March 4, 2021

FBAR & Failure to Disclose Income

Are you concerned about not having filed prior year Reports of Foreign Accounts (FBAR) and/or failing to disclose related income?

The relevant Treasury Form (otherwise known as Form 90-22.1 or FBAR) carries significant penalties for failure to file. We can explain your options. We also handle prior year amended tax returns known as the 1040X.

The U.S. government is aggressively tracking down and criminally prosecuting willful non-disclosure of the use of offshore accounts to evade U.S. tax liabilities. Individual taxpayers who file U.S. tax returns, and who have any offshore or foreign accounts must report income from these offshore accounts on their income tax returns. They must also declare any offshore or foreign bank accounts over which they have signatory authority, regardless of whether they receive any income from the account.

Taxpayers are required to report information identifying their foreign accounts by filing a Form TDF 90-22.1, Report of Foreign Bank and Financial Accounts, - more commonly known as an FBAR - no later than June 30th of each year. There are no extensions. Anyone with an offshore account bank account who does not file an FBAR can be hit with both criminal tax penalties, and civil tax penalties.

Voluntary Disclosure – The OVDP has been closed by the IRS. See Streamlined Filing Compliance Procedures for more updates and eligibility.

Regardless of the reason funds are being held overseas, taxpayers must disclose their existence and report any income derived from them to the Internal Revenue Service. The IRS has made offshore tax evasion a top priority. A Voluntary Disclosure provides U.S. taxpayers with previously undisclosed offshore accounts a way to possibly avoid the tougher penalties and potential criminal prosecution.
We can assist with latest IRS Offshore Account Amnesty Program

On January 9, 2012, the IRS introduced the reopening of its Offshore Voluntary Disclosure Program for Undisclosed Offshore Accounts!

The basic terms of the program are:
1. A 27.5 percent penalty on the taxpayers’ undisclosed offshore accounts with the highest aggregate account balance over an eight-year period.
2. Participants must pay back taxes and interest for up to eight years as well as accuracy related and/or delinquency penalties.
3. Participants must file all original and amended tax returns and include payments for taxes, interest, and accuracy related penalties.

This is an area of ongoing activity by the IRS and the Department of Justice.

Streamlined Filing Compliance Procedures / Streamlined Voluntary Compliance Procedures

This modified streamlined procedures have been put into place only for individual taxpayers, including estates of individual taxpayers, and is available to U.S taxpayers both in the U.S. and those living abroad.

Do you have outstanding U.S. tax returns or unpaid taxes that you need to address? Addressing past non-compliance on a voluntary basis generally positions a taxpayer much more favorably than waiting for 'discovery'.

Voluntary disclosures are extremely sensitive and complex, and they are subject to strict rules and guidelines. Once taxpayers are accepted into the voluntary disclosure program, they must provide the IRS with full cooperation while their case is being reviewed. Generally, the IRS’s Voluntary Disclosure policy applies to a taxpayer who:

- A streamlined procedure for filing delinquent or amended tax returns.
- Completely and voluntarily informs the IRS of his tax violations.
- Withholding of information to the IRS was not done willfully.
- Had income from only legal sources.
- Makes the disclosure prior to being informed that he is under criminal investigation.
- Files a correct tax return or cooperates with the IRS in ascertaining his correct tax liability; and
- Makes full payment of the amount due, or if unable to do so, makes arrangements to pay.
- The IRS initiated a civil examination of taxpayer’s return for a taxable year.
- If you owe any back taxes, interest or penalties, you must pay prior delinquencies.

IRS Criminal Investigation Voluntary Disclosure Practice or streamlined procedures

The IRS states that “Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurance that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the IRS Criminal Investigation Voluntary Disclosure Practice and should consult with their professional or legal advisers.”

Back Taxes

There are a number of penalties you may be subject to for failure to file and pay taxes. Taxpayers should file all tax returns that are due, regardless of whether or not full payment can be made with the return. A late filer may qualify for a payment plan. If taxes are owed, a delay in filing may result in penalty and interest charges that could increase your tax bill by more than 25%.

While there is no penalty for failure to file a tax return if a refund is due. But by waiting too long to file, you can lose your refund. The return must be filed within three years of the due date. If you file a return, and later realize you made an error on the return, the deadline for claiming any refund due is three years after the return was filed, or two years after the tax was paid, whichever expires later.

Taxpayers who are entitled to the Earned Income Tax Credit must file a return to claim the credit even if they are not otherwise required to file. The return must be filed within three years of the due date in order to receive the credit.

Continued non-compliance by flagrant or repeat non-filers could result in additional penalties and/or criminal prosecution.


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