Comes now The Wall Street Journal in a comprehensive article (7/20/09) to remind American tax scofflaws with offshore account that time is running out to make things right with the U.S. Internal Revenue Service.
Last March, the IRS announced a "Voluntary Disclosure program" for people who haven't been reporting or paying taxes on offshore income. The IRS warns that those who don't confess by a Sept. 23 deadline will be hit with far bigger penalties.
Says The Journal: "The Internal Revenue Service has stepped up scrutiny of offshore accounts and foreign income, an enforcement campaign that could sweep up tens of thousands of taxpayers...The IRS is using a once obscure tax form called the Foreign Bank Account Report, or FBAR, to force taxpayers to provide information on income they earn or bank accounts they hold overseas.
"It is threatening tough action against taxpayers who don't file the form and has greatly broadened those subject to filings beyond direct owners of offshore accounts. The requirement applies to U.S. citizens and residents who have offshore accounts totaling $10,000 at any point during the year."
FBAR Blues
Well, the FBAR may be obscure to some reporters, but over the eleven years since our founding the members of the Sovereign Society and readers of our publications, such as The Offshore A-Letter, should know all about FBAR.
Not only have we explained its annual June 30 filing requirement, we even reprinted the FBAR in our publications and regularly direct readers to the IRS web site page for the form. Frankly, we believe our meticulous approach to explaining IRS filing offshore report requirements is part of out duty to keep members and readers informed -- and out of trouble with the IRS.
On Notice
You may not have noticed it, but on one of the very first pages of each of our publications you will see this statement:
The Sovereign Society advocates full compliance with applicable tax and financial reporting laws. U.S. law requires income taxes to be paid on all worldwide income wherever a U.S. person (citizen or resident alien) may live or have a residence. Each U.S. person who has a financial interest in, or signature authority over bank, securities, or other financial accounts in a foreign country that exceeds $10,000 in aggregate value, must report that fact on his or her federal income tax return. An additional report must be filed by June 30th of each year on an information return (Form TDF 90-22.1) with the U.S. Treasury. Willful non-compliance may result in criminal prosecution. You should consult a qualified attorney or accountant to insure that you know, understand and comply with these and any other reporting requirements.
Last April 16th I wrote a blog article entitled "We Assume You Are an Honest American Taxpayer"
In that article I repeated an assumption on which Sovereign Society advice, publications and policies have been firmly based -- that most of the Americans with whom we work obey the law and pay their taxes, however much we may complain.
We publish these constant reminders because we know that in exercising our freedom to "go offshore" we are fighting the false assumption of the IRS bureaucracy -- (and the U.S. government in general) -- that any U.S. person who has offshore financial dealings of any kind is probably guilty of tax evasion or some illegal activity.Of course this false notion turns on its head the traditional American legal principle that a person is presumed innocent until proven guilty. And there are very many valid reasons for offshore financial activity, tax evasion certainly not being one of them.
Be Careful
As to the tax amnesty about which The Journal wrote, when the IRS announced it last March, I warned not to take it at face value and to be cautious if you are one that may need to pursue it.
I advised not to rush into the IRS Voluntary Disclosure program because U.S. tax laws and IRS rules are full of traps for unwary taxpayers.
Our advice then and now: a U.S. taxpayer who has unreported income first should contact a criminal tax defense attorney for a complete review of the person's tax status. Rule One is: your lawyer, not you, should approach the IRS. But unless the contact with the IRS is made in advance of the Sept. 23rd deadline, the penalties could be much more severe. (If you need a tax attorney referral, we can provide one. Email us at info@sovereignsociety.com/)
Volunteers Can Be Prosecuted
Although the IRS amnesty provides that a taxpayer only need to compute and pay unpaid taxes for 2002-2008, the IRS may also examine earlier years. Anyone who voluntarily participates in the program opens themselves to the possibility that the IRS will deny the promised amnesty benefits. The IRS can still pursue criminal charges and penalties if it wishes.
As The Journal article states, the IRS has been grilling taxpayers who have come forward in face-to-face interviews. Although the IRS says there is no standard set of questions it asks those who come forward, lawyers say their clients usually are asked the same 30 questions the WSJ article lists.
Jacobs Web Pages Help
Vern Jacobs CPA, our associate over the years and a leading offshore tax expert has created a special page on his web site entitled "Offshore Voluntary Compliance Initiative for 2009." It contains a full description of what the IRS proposes, along with many web links to IRS and other documents. It also includes a useful list of U.S. law firms that understand this issue and can assist those who may need help. (An earlier page explains IRS amnesty facts and is also well worth reading).
R U 1 2?
Let's hope you are reading my words with a somewhat superior attitude, but also some sympathy for "...those poor fools who got themselves into this mess!" If you're in this mess, act now to get out of it.
And in your leisure, I commend to you an excellent 2001 essay by my tax expert colleague Mark Nestmann, entitled "Tax Avoidance vs. Tax Evasion."
The Sovereign Society is a recognized voice in the complex offshore world. Join the Sovereign Society and keep informed.
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