Since the establishment of FBAR, FATCA, and OVDP, the IRS has cracked down on U.S. citizens who have foreign accounts or assets that have been unreported. The IRS has collected more than $5 billion in back taxes, interest, and penalties from over 33,000 taxpayers who participated in the offshore voluntary disclosure program (OVDP). A couple weeks ago, the IRS announced there are new rules regarding U.S. expats with dual citizenship who have been unfairly treated in the IRS’s crackdown of offshore accounts.
This relief will greatly help those middle-class expats who live in highly taxed countries like the UK and Canada. U.S. tax filers are required to disclose any foreign accounts they may own and how much income they received from each account. They must do this on Schedule B of their 1040 in addition to filing a FBAR (Report of Foreign Bank and Financial Account) with the U.S. Treasury. If you fail to do so, the U.S. treasury has the authority to confiscate everything in your foreign account plus additional penalties for not filing the FBAR.
The IRS said that beginning September 1, dual citizen expatriates and green card holders living abroad who owe less than $1,500 a year on unfiled 1040s will be qualified for special relief. They must only file three years of back tax returns and six years of back FBARS. However, they will not receive the FBAR penalty. Additionally, taxpayers with foreign retirement plans like the Canadian RRSPs (the Canadian IRA) can exclude the deferred income from their back returns.
For those currently in the OVDP, it is required to file amended tax returns for the previous eight years for any owed taxes and interest from foreign accounts. There is a 20% penalty on all back taxes owed. In addition, they must pay an FBAR penalty equal to 27.5% of the account’s highest balance during the previous eight years.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.