A couple of months ago, we wrote about the extended deadline for filing the paperwork to take advantage of the IRS’s 2011 Offshore Voluntary Disclosure Initiative (OVDI). We would like to believe that anyone who was in a position to benefit from this initiative has already done so, to avoid possibly being subjected to penalties that are more severe, but we know that is probably not the case.
If you know you are still not in full compliance with the law regarding offshore bank accounts and overseas assets, we definitely recommend that you work with an experienced tax attorney to bring your federal tax obligation up to date as soon as possible. Otherwise, you may receive a Information Document Request (IDR) from the Internal Revenue Service. It is not a good day when you receive an IDR from the IRS.
Even if you have worked with an accountant when preparing tax returns that include overseas assets, you may still receive an IDR based on a previous filing. At that point, you will need to submit back to the IRS a completed Form 4564. According to this sample of a Form 4564 from 2007, you may have received the IDR because the IRS “has identified certain transactions as ‘listed transactions’ for purposes of §1.6011-4(b)(2) of the Income Tax Regulations. The Service considers transactions that are the same as or substantially similar to listed transactions to be tax avoidance transactions.”
We are certain most upstanding citizens would never intentionally not pay their tax liability on international assets, primarily to avoid being audited and the potential harsh penalties. But we also know how complicated the tax code is and how difficult it is to understand all of the requirements, so we realize how easy it is to make a mistake when dealing with taxes on foreign bank accounts and other overseas assets. We help people all of the time who cannot seem to even manage their domestic financial affairs properly, so we empathize when the additional laws regarding overseas assets are thrown into the mix.
As the global economy expands into more households and businesses as a result of immigration, access to information technology, and other factors, the IRS has been increasingly focused on reducing international tax evasion, so these types of tax shelters are coming under more scrutiny than ever.
The OVDI mentioned above was a preliminary program in the IRS’s campaign to eradicate this type of tax liability avoidance method. The next phase of that campaign will not be fun for those who receive an IDR and have their tax returns examined.
Currently, overseas assets of more than $10,000 need to be reported on your tax returns, but that limit may soon be reduced, as a means of generating more tax revenue for the treasury and encouraging domestic investment. Other non-revenue-generating foreign assets may also eventually need to be reported on annual tax returns. We will keep you posted about any changes to this area of the tax code.
Reporting taxes based on international assets is complex, so if you would like the assistance of a knowledgeable tax attorney, as well as a CPA, the Law Offices of Connie Yi, P.C. has the experience necessary to handle all aspects of foreign bank account reporting for clients in the Bay area . Contact us for free consultation at one of our four conveniently located offices in San Francisco, San Mateo, San Jose, and Pleasanton, California.