Offshore Accounts: When is Voluntary Disclosure to the IRS Required?

If you are a U.S. taxpayer and you own (or control) offshore accounts, you may have an obligation to disclose your offshore accounts to the federal government. This obligation does not go away—and the longer you wait to disclose your offshore accounts, the more risks you can face. Learn more from Washington D.C. international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

All U.S. Taxpayers Must Disclose Qualifying Offshore Accounts

Under federal law, all U.S. taxpayers must disclose qualifying offshore accounts on an annual basis. If a taxpayer misses a year, filing the following year does not bring the taxpayer into compliance. Instead, taxpayers must correct all previous years’ deficiencies—and, unless and until they do so, they will remain at risk of facing IRS scrutiny.

What is a “qualifying” offshore account? Taxpayers' obligations to disclose offshore accounts exist under two separate federal statutes, and each of these statutes establishes its own filing thresholds:

• Foreign Account Tax Compliance Act (FATCA) – Under FATCA, taxpayers living in the U.S. must use Form 8938 to disclose their offshore accounts to the IRS if the aggregate value of their “foreign financial assets,” including offshore accounts, exceeds $50,000 on the last day of the tax year or $75,000 at any point during the tax year (double for married taxpayers filing jointly). Higher thresholds apply to taxpayers living abroad.
• Bank Secrecy Act (BSA) – Under the BSA, all taxpayers (those living in the U.S. and abroad) must use the Report of Foreign Bank and Financial Accounts (FBAR) to disclose their offshore accounts to FinCEN if the aggregate value of their offshore accounts exceeds $10,000 at any point during the year.

While taxpayers must file Form 8938 with the IRS and file their FBARs with FinCEN, the IRS is responsible for enforcing taxpayers' obligations under FATCA and the BSA. Thus, all offshore account disclosure violations present risks for triggering an IRS audit or investigation.

Timely Disclosure and “Voluntary Disclosure” Are Very Different

For taxpayers who have not timely disclosed their offshore accounts to the IRS or FinCEN, avoiding IRS scrutiny may involve submitting a “voluntary disclosure.” Timely disclosures under FATCA and the BSA and voluntary disclosures are very different.

A voluntary disclosure is a means of resolving a tax controversy with the IRS. If you have not disclosed your offshore accounts as required under FACTA or the BSA, then you may need to submit a voluntary disclosure in order to avoid incurring additional penalties. But, there are other possible options as well, and, in this scenario, it is critical that you choose the best option under the circumstances at hand.

Discuss Your Offshore Account Disclosures with Washington D.C. International Tax Attorney Kevin E. Thorn

Do you need to know more about your offshore account disclosure obligations or the risks of failing to file Form 8938 or an FBAR? If so, we encourage you to contact us promptly. To schedule a call with Washington D.C. international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 202-349-4033 or tell us how we can reach you online now.