International Advisory Services

IRS Broadens the Scope and Gets Tougher on Failing to Report Overseas Accounts

The IRS has extended and streamlined the process for taxpayers who unintentionally failed to report and pay tax on overseas income. At the same time, it will be taking a deeper financial bite out of those who willfully avoided the income reporting laws.

The Service has modified compliance procedures offered in 2012 to those who come forward of their own accord under the Offshore Voluntary Disclosure Program . Those using the Streamlined Domestic  Offshore Procedures or the Streamlined Foreign Offshore Procedures must certify that their failure to report the income, pay the tax, and submit required returns was not done willfully.

Among the more significant changes are:

• Extending requirements to U.S. taxpayers residing both in and outside the United States and the inclusion of their estates.
• Eliminating penalties for U.S. taxpayers residing overseas. Those who live in the U.S. will pay a 5% penalty.
• Eliminating the $1,500 tax threshold. Previously only those who owed $1,500 in unpaid tax in a particular year could qualify for lower penalties.
• Eliminating the risk assessment process required under the 2012 offer.

Taxpayers under a civil examination by the IRS, even if it does not relate to undisclosed foreign accounts, cannot qualify for the streamlined procedures. 

The Service has been very aggressive and successful in getting the cooperation of overseas banks in revealing the names of U.S. taxpayers who have accounts. For taxpayers who do not come forward in advance of a U.S. investigation,  penalties increase from 27.5% of the balance in the particular account to 50%.

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 or sbrenner@berdonllp.com.