The IRS has given taxpayers multiple opportunities to come forward with their delinquent FBAR reports.  With the 2009 and 2011 disclosure programs closed, the IRS realized how affective these programs have been - over $4.4 billion has been raised so far!  Due to this success and the FACTA requirements that go into effect this year, the IRS is offering taxpayers another opportunity to come forward with their delinquent FBAR reports and face reduced criminal and civil penalties.  While there are some important differences between the current program and the expired programs, it is still the best way to come forward with your delinquent FBAR reports.

The third Off Shore Voluntary Disclosure Program offers individuals who have not reported their foreign bank accounts, trusts, or accounts related to foreign corporations to come forward and face reduced penalties and avoid criminal persecution.   The reduced penalties are not quite as low as the previous program’s penalties, but they are still significantly lower than what would be applied to a taxpayer’s delinquent FBAR filings if they were to come forward without taking advantage of the Offshore Voluntary Disclosure Program.

Currently, the penalties for filing can be up to 50% of the value of the overseas accounts if an individual fails to come forward with their FBAR reports and is caught with accounts overseas.  Filing with the FBAR under this new program will trigger a 27.5% penalty, but taxpayers with specific situations can be eligible for a reduced rate of 5%, and many Expats will owe no penalty at all if they come forward.

Offshore accounts with limited balances will face a smaller 12.5% penalty for failing to file.  The IRS said in a press release that individuals who did not surpass $75,000 in any calendar year will be eligible for this lower 12.5% penalty. Note that these penalties will be assessed for each calendar year that you are delinquent in filing the FBAR report.

One aspect about coming clean with your FBARs and getting caught up with the U.S. Department of the Treasury is that it also triggers a responsibility to file previous years’ tax returns.  If you failed to file all reports, including the FBAR, you will need to file 6-8 years of back taxes as well as the additional FBAR forms in order to be eligible for the lower penalty rates.  Likewise, if you did file previous years’ expat taxes but disclosing these accounts uncovers undisclosed income, amended returns will need to be filed at the same time as the FBAR reports in order to be eligible for the reduced penalties.

The obvious question that many taxpayers rightfully bring is up is “how will the IRS find my assets overseas?” The IRS and the U.S. government have a slew of tax treaty and information trading agreements with a number of countries in order to gain information about their citizens’ activities in foreign countries. You may have heard about Wegelin & CO – the Swiss bank that has been indicted by the US DOJ even though they have no US offices or Direct US access – this is scaring the heck out of foreign banks and many are choosing to either report all US account holders to the IRS or simply not bank American clients!  The information that they now provide to the IRS includes information related to the monetary activity of individuals abroad and can easily be the foot in the door for finding individuals with delinquent FBAR reports.

Another good reason to come clean is the constant increase in agents hired by the IRS specifically to track down and find expatriates keeping money in overseas accounts.  These agents are always being hired, and each and every one of them represents a reason why you should come forward with your FBAR reports and delinquent taxes and face reduced rates.

One key difference about this program in comparison to previous voluntary disclosure programs is the lack of a due date. When they introduced the Offshore Voluntary Disclosure Program for delinquent FBAR filers, they did reserve the right to introduce a due date if they feel it is necessary. If you are behind on your US taxes and FBAR filing you should speak to an Expat Tax Expert today.