You can inherit an offshore account from a relative, or you may have a business interest outside of the U.S. Perhaps you are hedging investments as part of a diversification strategy.
Owning an offshore bank account is not a crime as long as the holders abide by particular laws and regulations. If you have an offshore bank account with more than $10,000.00, the law requires filing a Foreign Bank and Financial Account (FBAR) report every year.
You must include an appropriate disclosure of the foreign bank account and tax return on any income earned. The consequences of failing to file the annual FBAR and tax return disclosure are prosecution and possible incarceration.
Leveraging voluntary disclosure
While testifying before the Senate Finance Committee, the Commissioner of the Internal Revenue Service highlighted the “unprecedented focus” the IRS was giving offshore accounts. The March 2009 testimony touched on the increased pressure on offshore financial institutions that facilitate the hiding of assets.
The concerted efforts by the IRS and the U.S. Department of Justice have been evident in civil and criminal proceedings against UBS, a Swiss banking giant, and others.
Typically, the Voluntary Disclosure Practice, in place since 2004, lays out guidelines on disclosing a previously undisclosed income without repercussions. However, there are undoubtedly numerous and stringent criteria that you to meet.
Requirements to leverage voluntary disclosure
While voluntary disclosure can bring you into compliance and avoid prosecution, it must be done correctly. Consulting with an experienced legal professional in offshore matters can safeguard your constitutional rights.
Voluntary disclosure is only valid before:
- Notification of an impending investigation by the IRS or the start of an IRS investigation
- Whistleblowing by a third party about fraud or non-compliance
- The IRS is informed about non-compliance from other sources
Voluntary disclosure is no guarantee for non-prosecution in Massachusetts or New England. It does not apply to income from illegal sources, so individuals considering voluntary disclosure should fully understand the scope of such actions.