In a recent news release, the IRS announced the opening of a new International Data Exchange Service (IDES) for financial institutions and foreign countries to securely provide information on financial accounts held by U.S. persons. More than 145,000 financial institutions have registered and more than 110 countries have agreed to provide this information to the IRS.
This announcement marks another step in the IRS’ attempts to tax previously “hidden” offshore accounts. (U.S. taxpayers with over $10,000 in foreign accounts are required to file an annual foreign bank account report (FBAR) and report worldwide income.)
The IRS currently has in place an offshore voluntary disclosure initiative (OVDI), which provides incentives for U.S. taxpayers with unreported foreign income to disclose. The OVDI offers reduced penalties — anywhere from 5% to 50% of the account’s highest balance over an eight-year period — instead of the potentially even more severe failure-to-file penalties that can be as high as the greater of $100,000 or 50% of the highest balance per account, per year, or even $500,000 per account if there are criminal charges for willful failure to file.
Through June 2014, the IRS’s OVDI programs have resulted in more than 45,000 voluntary disclosures and $6.5 billion in back taxes, interest, and penalties.
If a taxpayer doesn’t have unreported foreign income and has merely failed to file the FBAR, the IRS has been willing to waive penalties if the taxpayer voluntarily files the past due FBARs.
Please read the IRS news release here.