How Do IRS Offshore Disclosures Work?

The Internal Revenue Service (IRS) Offshore Disclosure Program provides individuals with undisclosed offshore accounts an opportunity to come forward and disclose their financial assets, ensuring compliance with U.S. tax laws. If you wait in the hope that the undisclosed assets will not be discovered, you will likely face severe consequences.

By voluntarily disclosing your offshore accounts, you can avoid the most costly penalties, including jail time. Whether or not you intentionally withheld your tax information will not prevent you from applying for the program, but the disclosure must be made before the IRS learns of it on its own. If the disclosure is made too late, criminal proceedings can be initiated.

Our tax attorneys can help you with a free case analysis when you call McCormick Tax Law at (215) 630-0861.

Understanding How the IRS Offshore Disclosure Program Works?

If you are a U.S. taxpayer and find yourself to be out of compliance with the IRS, the Offshore Disclosure Program could be a solution to the crisis. This option offers you a chance to voluntarily disclose your unreported income, money, assets, investments, and accounts to the IRS and get back into compliance.

The Offshore Voluntary Disclosure Program is a federal government program that provides taxpayers with an opportunity to disclose their offshore assets that were previously unreported. However, you will not want to face the disclosure process without the help of our experienced tax attorneys. The process is quite complex and has undergone changes in recent years.

To make things easier for taxpayers, the voluntary disclosure programs were combined in 2019. Since then, the IRS has been taking a more aggressive approach in recent years regarding foreign accounts compliance. The process will usually be different depending on whether your nondisclosure was deemed willful. If you qualify as non-willful, though, you might be eligible for streamlined filing.

The Difference Between Non-Willful and Willful Violations

Determining whether a violation is willful or non-willful is a complex matter. The IRS does not have a specific test to make such a determination. Instead, it considers all the facts and circumstances and then makes a decision based on the totality of the circumstances.

The analysis is subjective, and even two IRS examiners who examine the same set of facts and circumstances might reach different conclusions about a taxpayer’s willfulness or non-willfulness. For this reason, it is essential that taxpayers carefully present their case to the IRS in a clear and concise manner that accurately represents the relevant facts and circumstances.

However, a violation being classified as willful does not necessarily require a person to act with willful/purposeful intent. The term willful encompasses other acts of willfulness, such as reckless disregard and willful blindness.

A person who behaves recklessly is considered willful and can face the same consequences as those who intentionally break the law. Reckless conduct does not have a precise definition but suggests that the taxpayer was grossly negligent in understanding the requirements.

Similarly, a taxpayer who acts with willful blindness, meaning that they were unaware of their obligations, can also be deemed willful. For example, if a taxpayer had a suspicion that they should have reported their foreign accounts and assets but deliberately refrained from conducting further research or consulting with a tax expert, the U.S. government could use this as evidence of willful blindness.

When is a Disclosure Considered Voluntary?

When a taxpayer provides information that is complete, truthful, and timely to the IRS, it is considered a voluntary disclosure. You will also be required to cooperate with the IRS in determining your correct tax liability and make arrangements to pay the IRS in full. By doing so, you can avoid potential legal action and severe penalties from the IRS.

To ensure that a voluntary disclosure is considered timely, it must be submitted to the IRS before they initiate a civil examination or criminal investigation of the taxpayer. Alternatively, the voluntary disclosure must be submitted before the IRS has received information from an external source, such as an informant, another governmental agency, or the media, that indicates the taxpayer’s noncompliance and begins an investigation.

In fact, disclosure must typically be made before the IRS has initiated a civil or criminal investigation that pertains directly to the taxpayer’s liability. If the IRS has obtained information relating to the taxpayer’s liability through a criminal enforcement action, such as a search warrant or grand jury subpoena, before the voluntary disclosure is made, it will also not be considered timely.

How Do I Make an Offshore Voluntary Disclosure?

If you want to make a voluntary disclosure to the IRS, you can start by contacting the nearest IRS Criminal Investigation office. They will be able to guide you through the process and help you understand your rights and responsibilities.

Before doing so, you might want to call the IRS Voluntary Disclosure Hotline at (215) 516-4777 with any questions or concerns you have. You can also visit the IRS’s Voluntary Disclosure page online for additional information. While these sources can be helpful, we still encourage you to consult with our firm before making any decisions that cannot be undone.

Will Penalties Be Assessed if I Qualify for the IRS’s Offshore Disclosure Program?

Failing to report all your income can lead to serious consequences. In addition to owing taxes, you might be subject to various penalties. For instance, if you have unreported offshore accounts, you might face a 27.5% offshore penalty. This penalty is calculated based on the highest aggregate balance of your foreign accounts over the course of eight years.

Apart from the offshore penalty, you might also be liable for a 20% accuracy-related penalty. This penalty is imposed on the total underpayment of your taxes over the same period. The IRS might impose this penalty if they find that you made a substantial understatement of your tax liability or if you failed to disclose certain information on your tax return.

Furthermore, if you fail to pay your taxes or file your tax returns on time, you might be subject to additional penalties. These penalties might include late payment penalties, failure-to-file penalties, and interest charges.

How Can a Tax Attorney Help Disclose My Offshore Tax Information?

If you need to disclose your offshore assets, we can provide valuable support in several ways. First, we can help you determine the most appropriate offshore disclosure program after evaluating your situation and degree of non-compliance.

Perhaps most importantly, we can help you collect all the necessary financial records, account statements, and other supporting documents required for the disclosure process.

Lastly, our team can assist you in accurately completing the required forms, ensuring compliance with IRS procedures, and effectively communicating with the IRS on your behalf. By doing so, we can help you navigate the complex program and minimize the potential penalties applied.

Our Tax Attorneys Are Ready to Help You Make Your Disclosures

For a free case evaluation with our skilled tax attorneys, contact McCormick Tax Law today by calling (215) 630-0861.