IRS to Use Foreign Bank Account Info to Scrutinize Forgiven Taxpayers
Since their inception in 2009, the IRS tax amnesty programs have been fairly successful in encouraging delinquent taxpayers to come forward and disclose their offshore activities to the IRS. As the IRS receives more bank account information from foreign institutions, however, it may begin to revisit amnesty applications to see whether the bank account info provides evidence that forgiven taxpayers did not in fact qualify for amnesty.
Amnesty by the Numbers
According to the IRS, tens of thousands of taxpayers have utilized the main IRS tax amnesty program, called the Offshore Voluntary Disclosure Program (OVDP), paying more than $8 billion to the IRS to become fully tax compliant and avoid significantly worse civil penalties and possible criminal prosecution. Taxpayers participating in the program must submit 8 years of past tax returns and FBARs and must pay a penalty equal to 27.5 percent (which can be increased to 50% if the account was at a listed “bad” bank) of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the period covered by the disclosure.
The friendlier of the IRS amnesty programs, the Streamlined Procedures, has also welcomed a good number of participants. More than 30,000 taxpayers have participated in the program, which often allows taxpayers to disclose their past without receiving any penalty from the IRS. In contrast to the OVDP, qualification for the Streamlined Procedures requires that the taxpayer submit 3 years of tax returns, 6 years of FBARs. It also requires that taxpayers submit a non-willful certification (Form 14653), which explains how the taxpayer’s delinquency was non-willful in nature.
New Bank Account Info
Through FATCA and other efforts, including the U.S. Justice Department’s Swiss Bank amnesty program, the IRS has received a bounty of foreign account information, including recorded phone calls with U.S. customers, which could provide evidence that contradicts previous claims of non-willfulness by taxpayers participating in the Streamlined Procedures.
In this regard, in a number of recent statements, the IRS has expressed its growing skepticism of taxpayers claiming ignorance. For instance, at the end of last year, IRS Commissioner John Koskinen, speaking at a tax conference, declared that, “At some point, we will have assumed that people have had enough notice that they should have become voluntarily compliant… At that point – after some period of time and you’re not compliant—it will be assumed that logically you are purposely not compliant.”
It remains to be seen whether the bank account information now being received by the IRS will lend credence to such expressions of cynicism by the Commissioner.
Understanding Your Options
If you are a delinquent taxpayer living abroad, a number of options are currently available to you, but it is critical that you understand which options are best under your circumstances. The IRS is closing in on non-compliant expats, so the time to act is now. Our experts at Expat Tax Professionals are available to help discuss your options and implement the option that is best for you.
By Ephraim Moss, Esq. & Joshua Ashman, CPA