October 23, 2019

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IRS Continues Pursuit of Foreign Reporting Violations

In recent years, the Internal Revenue Service (IRS) and the U.S. Department of Justice (DOJ) have increased their pursuit of individuals who failed to disclose foreign bank accounts and to file required tax and information returns.  In addition to civil penalties for such violations, the government is aggressively pursuing criminal sanctions ranging from monetary penalties to prison.  For example, the DOJ recently announced a plea agreement with a 79-year-old Florida woman relating to undeclared, inherited foreign financial accounts that will require her to pay more than $20 million in civil penalties and could result in a prison term of up to six years.  A high-ranking IRS special agent also recently warned that information sharing with foreign countries is producing better responses and taxpayers must “come on board or face the consequences.”

Many individuals are unaware that, in addition to being required to report worldwide income, they may also be required to file various information returns relating to items such as foreign bank accounts and assets, interests in foreign entities and transactions with foreign entities, including certain distributions and gifts.  This is true even if the information would not lead to any additional U.S. tax.  Civil penalties for violations of these reporting requirements vary, generally starting with a $10,000 per violation per year amount that can escalate into higher penalties depending on the facts and circumstances.  Criminal penalties include monetary fines and even prison time.

The IRS began an open-ended offshore voluntary disclosure program in 2012 designed to allow noncompliant individuals who failed to report taxable income in the past to come forward and resolve their tax matters.  The program, which requires the filing of delinquent forms for the prior eight years and the payment of back taxes, interest and certain penalties, is the only way to achieve finality and avoid criminal prosecution.  However, the IRS may end the program at any time in the future.  Another IRS program is the streamlined filing compliance procedure for non-resident U.S. taxpayers who failed to timely file U.S. tax returns or disclose foreign bank accounts, and who present a low compliance risk.  Other disclosure options may exist depending on an individual’s situation, especially where there is little or no unreported taxable income, and the circumstances may indicate reasonable cause for the filing violations.  Given the current environment and the potential civil and criminal penalties, taxpayers should take the necessary steps to ensure they are in compliance with their U.S. tax and information filing obligations.

View the IRS’s description of the 2012 Offshore Voluntary Disclosure Program.  

View the IRS’s description of the streamlined filing compliance procedure.  

View the DOJ’s press release. 

© 2019 McDermott Will & Emery


About this Author

Astrid B. Owen, International Trust, Tax, Wealth, Attorney, McDermott law firm

Astrid Owen is a partner in the law firm of McDermott Will & Emery UK LLP, based in its London office. Astrid advises internationally based clients and their family offices, trustees and private banks on international trust, tax and wealth transfer issues, with emphasis on Continental Europe, the Middle East, the UK and the US.

+44 20 7577 3486
Andrew R. Roberson tax attorney McDermott Will. Andy handles tax cases in Federal court, United States Tax Court

Andrew R. Roberson is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Andy specializes in tax controversy and litigation matters, and has been involved in over 30 matters at all levels of the Federal court system, including the United States Tax Court, several US Courts of Appeal and the Supreme Court. 

Andy also represents clients, including participants in the CAP program, before the Internal Revenue Service Examination Division and Appeals Office, and has been successful in settling tax disputes through the administrative appeals and Fast Track processes.  He has extensive experience in Tax Court practice and procedure, corporate reorganizations, TEFRA, tax accounting and substance/form issues.  Andy is a frequent speaker on tax topics and has authored several articles on tax matters. 

Andy is active in the pro bono community, providing services to low-income individuals in Federal and state tax disputes on issues such as substantiation, deductions and credits, innocent spouse relief and collection matters.  He was recently named 2012 Volunteer of the Year by the Center for Economic Progress.