For U.S. citizens, any income earned worldwide must be reported. You must submit a Report of Foreign Bank and Financial Accounts (FBAR) every single year, along with IRS Form 8938. If you have not done this, you may want to participate in the Offshore Voluntary Disclosure Program (OVDP) to limit consequences for non-reporting.
While OVDP can limit your penalties and protect you from criminal prosecution, the federal government has changed OVDP rules to impose larger penalties on account holders at certain financial institutions. Now, another bank has been added to the list of institutions whose account holders will face additional penalties for voluntary disclosures.
Even with these higher OVDP penalties, you typically are still better off coming forward because the consequences are even worse if the IRS investigates and finds wrongdoing and you aren’t part of a voluntary disclosure program. A Washington D.C. tax evasion lawyer can assist you in determining whether you are eligible for streamlined reporting or whether participation in the OVDP is a good option for you.
OVDP Penalties for Voluntary Disclosure
If you have failed to file FBARs and report offshore income, it is almost a certainty that the IRS is going to find out eventually. The IRS is going after banks and bankers worldwide and forcing them to turn over customer lists. Once you are under investigation for failure to fulfill tax obligations, it is too late for you to join a voluntary disclosure program.
You could be charged with a crime and even if you aren’t, civil penalties for willful violations are extremely expensive. The civil penalties equal the greater of 50 percent of the balance of unreported offshore accounts or $100,000. The penalties are assessed for each violation and each year you didn’t report is a separate violation. This has led to penalties being assessed that are equal to 150 percent of the offshore account (more money than is in the entire account).
Participating in OVDP or a streamlined disclosure program can help to avoid these additional consequences. Some OVDP participants can limit their penalties to 27.5 percent of account value. Others, however, are not so lucky. There are certain banks on a “bad banks” list and if you had your accounts at one of them, the OVDP penalty is equal to 50 percent of the account.
The “bad banks” on the list include:
- UBS AG
- Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
- Wegelin & Co.
- Liechtensteinische Landesbank AG
- Zurcher Kantonalbank
- Swisspartners Investment Network AG, swisspartners Wealth Management AG, Swisspartners Insurance Company SPC Ltd., and Swisspartners Versicherung AG
- CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
- Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
- The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
- The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
- Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates
- Bank Leumi le-Israel B.M., the Bank Leumi le-Israel Trust Company Ltd., Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA
Bank Leumi is a new addition to the list. Bank Leumi was added after settling charges recently with New York and the U.S. government for $400 million for helping to facilitate tax evasion.
The higher penalties for customers with accounts at banks 1-10 on the list of “bad banks” apply if the investor submitted a pre-clearance request on August 4, 2014, or after that time.
For those with accounts at Sovereign Management, the higher penalties apply only for investors who submitted a pre-clearance request on or after December 19, 2014, and for investors at Bank Leumi, the key date after which penalties go up is December 22, 2014. Only people in OVDP and not the streamlined disclosure process will be subject to the higher penalties.
As the government goes after more banks, it could add more institutions to the “bad banks” list. If your bank is already on the list, even the 50 percent penalty that comes with participation in the OVDP may be better than the much larger penalties you could face if the IRS finds out about your non-disclosure before you come forward. You need to protect your financial interest and should speak with D.C. tax evasion lawyer Kevin Thorn as soon as possible about whether participating in OVDP is right for you.