OVDP | Foreign Bank Reporting Requirements | Gordon Law Group

Who Needs To Be Concerned About Foreign Disclosures?

The Internal Revenue Code requires individuals and business to report foreign holdings. Failing to comply may result in serious criminal and civil penalties.

The Internal Revenue Service administers the Offshore Voluntary Disclosure Program, through which parties can avoid criminal liability by reporting previously undisclosed accounts. An experienced OVDP attorney can help you avoid criminal penalties and work to reduce civil penalties.

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Foreign Disclosure of Interest — OVDP attorney infographic


Report of Foreign Bank and Financial Accounts

Individuals and businesses with signatory authority or financial interest over foreign bank accounts are required to file the Financial Crimes Enforcement Network Form 114 — the Report of Foreign Bank and Financial Accounts, or FBAR.

People with foreign accounts over $10,000 or more during any portion of the year are required to report their interests via the form. The potential penalties for failing to do so are severe.

The Disclosure Responsibility

Authorities require signatory parties of foreign holdings to report it using Schedule B of the 1040 income tax return (part III, line 7a). Then, they must fill out Form 8938 where they disclose the account’s balance along with additional information if the total balance exceeds $50,000 or more on the last day of the year.

If an account is greater than $75,000 on any day during the year,  the IRS requires Form 8938, even if the balance is lower than $50,000 on the final day. People who don’t check the appropriate box and submit the required forms on time may incur serious penalties.

Potential Penalties

Failures to file the required FBAR and additional forms may result in penalties that depend on whether the failure is deemed to be willful or non-willful. The civil penalties for violations that are non-willful include the following:

  • A fine of up to $10,000 per year during which the violation occurred
  • Accuracy penalties
  • Back taxes
  • Interest

Willful violations may bring fines of up to $100,000 or 50 percent of the aggregate values of the foreign accounts in addition to the interest, back taxes and accuracy penalties. Authorities can bring both criminal and civil charges against violators. When businesses do not report their interests, the IRS may hold the owners responsible.

Resolving the Reporting Problem with the Offshore Voluntary Disclosure Program

The IRS offers the Offshore Voluntary Disclosure Program to parties that have violated FBAR and other foreign disclosure requirements. Participants, for the most part, are protected from criminal prosecution. However, the IRS can assess eight years of tax data rather than the statutorily allowed six years. An OVDP attorney may help them with obtaining lower penalties for every year in which a violation occurred.

Opting Out of the OVDP

If the violations were not willful, some taxpayers may opt out of the OVDP. If you’ve not had criminal tax convictions in 10 years or have had previous FBAR problems, an attorney might be able to help mitigate penalties. Though, money in the foreign bank accounts must not have come from criminal sources or activities. Additionally, taxpayers who incurred penalties for under-reporting incomes may face higher hurdles. Finally, people who opt out of the OVDP must cooperate with the IRS.

Other Options

Thinking of ignoring the foreign disclosure requirement? We urge you to reconsider.

The IRS is keen to uncover foreign bank accounts. Some taxpayers might make quiet disclosures by filing amended returns for prior years, but doing so may leave them vulnerable to criminal prosecution.

Failing to report interests in foreign bank accounts may lead to severe civil and criminal penalties. The OVDP might help to protect some taxpayers from criminal prosecution while simultaneously reducing penalties. An experienced OVDP attorney can advise clients on OVDP options.

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