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Avoiding Tax Penalties Through Voluntary Disclosure

Avoiding Tax Penalties Through Voluntary Disclosure

In 2009, the Internal Revenue Service launched a few different programs to help companies and individuals with funds in offshore accounts come to terms with the tax liability laws. For many years, it has been considered a loophole for wealthy individuals to store funds in shell companies and subsidiaries that exist in other countries with lower taxes. In an attempt to let these individuals know that they aren’t going to turn a blind eye, the IRS has given the option to voluntarily disclose these assets and pay a penalty for their dishonesty.

Policy Changes

In June 2014, a few changes were implemented to the Offshore Voluntary Disclosure Program. First, the penalty was increased to 50%, from 27.5%, for certain types of accounts. Even such, this penalty is typically far less than paying years and years of back taxes or possibly having your assets seized completely. There is also the new streamlined filing procedure and delinquent “Report of Foreign Bank and Financial Accounts” Form 114 available.

How to Qualify

Individuals who are looking to avoid the lesser of two evils in terms of owing the IRS will want to take advantage of the OVDP, and fast. This program does have its stipulations – however. For example, as the program went into effect in 2009, the IRS states that it is available to those tax payers who timely and truthfully disclose the information to the IRS. The timing of your filing makes a big difference in whether or not you will be accepted. For example, the IRS has made it clear that those tax payers who do not file for OVDP until they receive notification of an audit or criminal investigation will not be eligible for the program.

What Happens Next

Under the OVDP, tax payers will be obligated to disclose any foreign assets or accounts which have not previously been claimed. The best course of action is to contact a tax lawyer and request assistance in handling the numerous forms that need to be filed. Having a legal member on your side will ensure that you have the best chance at receiving the smallest penalty under the disclosure program.

What if You Don’t Disclose?

Of course, there are tax payers who have happily thwarted their tax responsibility through offshore accounts and assets for years. Some may believe that they will never get caught – but this is a lofty belief. In 2014 the IRS employed an additional 8000 individuals with the sole purpose of looking for discrepancies in tax filings and finding those who are capitalizing on loopholes in the laws. The penalty for not filing voluntary disclosure can vary based on a number of circumstances. In addition to tax penalties, some individuals may be found guilty of criminal charges for withholding their assets. This can include up to a $500,000 file and 10 years in prison for tax evasion.

Opting in to the voluntary disclosure program is a must-do. If you are ready to take the leap before it is too late, contact our team of tax lawyers to help you get on the right path fast.