There has been much discussion in today’s political climate about the federal government’s deficit and increasing debt. Included in any discussion on this topic are two elements – increasing taxes on the wealthy and repatriating and taxing foreign investments and/or offshore accounts. While it is up to Congress to increase taxes on the wealthy, the Internal Revenue Service has been very aggressive in trying to discover and tax offshore investments and accounts. The IRS initiated two voluntary offshore disclosure programs, in 2009 and a second one in 2011. So far the IRS received over 33,000 disclosures and collected more than $4.4 billion in taxes and penalties. In January of this year, the service announced a new 2012 offshore voluntary disclosure program, which is similar to the prior successful programs. Unlike prior programs, the 2012 program is open-ended in length for reporting purposes, but the IRS has indicated that the voluntary reporting program could change any time and could end at any point. The penalties involved for failure to report and disclose are significant, increasing to 27.5% under the 2012 program. The penalty applies to the highest aggregate value of foreign accounts and assets during the eight full tax years prior to the disclosure. The penalties, along with interest, can easily deplete a foreign investment. These investments can include bank and financial accounts, tangible assets and intangible assets. The IRS casts a broad net for foreign assets. In addition, in 2010, Congress passed a provision under the HIRE Act requiring taxpayers report foreign financial assets to the IRS for taxable years beginning after March 18, 2010. Like the IRS’ voluntary disclosure program, the Act captures investment property, including foreign mutual funds, retirement plans, tangible and intangible property, real estate holdings, partnership interest, life insurance, commodities and even prepaid credit cards. Taxpayers are now required to report these items, provided they exceed a minimum threshold, with their tax returns. Unfortunately, the definition of foreign accounts is overbroad and tax consultants, including the IRS, are finding that the reporting requirements capture numerous foreign accounts, which are legitimate holdings and not tax avoidance schemes. As with other federal provisions, the Act reporting requirements can be expensive to deal with. If you have worked overseas, have retirement accounts or social security-like payments from overseas, life insurance or even vacation homes, you will need to talk with your tax advisors to see if you need to report these assets under these provisions. The penalties for failure to do so can be significant, including criminal prosecution. Your trusted advisors at Van Osdol & Magruder are prepared to assist you and answer any questions you may have.
Footer
Legal Netlink Alliance
