There is a big difference between intentional tax evasion and honest mistakes.
That is why, historically, there has been a clear distinction between tax fraud and other criminal tax violations, on the one hand, and civil tax controversies on the other.
Unfortunately, that distinction seems to have broken down when it comes to prosecutions for alleged failure to disclose offshore accounts.
The title of a recent report on offshore voluntary disclosure by the National Taxpayer Advocate speaks volumes. The report is subtitled “”The IRS Offshore Voluntary Disclosure Program Disproportionately Burdens Those Who Make Honest Mistakes.”
How does it do this?
The Taxpayer Advocate looked at the evidence of the application of voluntary disclosure programs since 2009. The conclusion was that the severe tax penalties imposed to settle potential charges for failure to disclose offshore accounts often have a draconian effect on taxpayers whose nondisclosure was not willful.
This finding is not only a concern on its own terms. It is even more troubling because offshore account compliance increasingly requires other steps beyond filing the Report of Foreign Bank and Financial Accounts (FBAR).
The implementation of the Foreign Account Tax Compliance Act (FATCA) will impose all sorts of other burdens. Though there have been several delays in FATCA implementation, the U.S. Treasury remains committed to working out intergovernmental agreements (IGAs) that will impose ever-greater scrutiny of foreign accounts.
If you are not sure where you stand regarding offshore account compliance, it therefore makes sense to discuss your situation with a tax attorney who is knowledgeable about offshore issues.
To learn more about our practice, please visit our page on offshore accounts.