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Should You Be Paying Offshore Taxes?

‘Offshore’ refers to something that’s carried out away from the mainland. You probably hear it the most when there’s talk about offshore oil drilling or fishing, but what does it have to do with taxes?

In financial terms, ‘offshore’ is used to describe businesses, accounts, assets, or transactions that occur outside the country of citizenship. Even when citizens aren’t physically located in the country, they continue to generate tax liability. If you’re wondering whether you should be paying offshore taxes, you’ve come to the right place.

To better understand the issue, let’s take an example. Say you have a job in the United States. You’re obligated to pay taxes to the government because you’re earning an income. Offshore taxing operates on the same principle. As a US citizen, it is your duty to pay income taxes regardless of where you’re living. Not doing so is a punishable offense. A new law allows the IRS to ask overseas banks for information on its citizens, and the banks must reveal the information. In other words, hiding information is not an option.

The IRS takes it very seriously when citizens store assets and don’t divulge information about income sources abroad. Many people attempt to use various methods to evade taxes, but it is not wise. If you own property or have bank accounts in another country, you must reveal your assets to the IRS. You should also pay off any penalties voluntarily. The longer you don’t, the worse it gets.

You must pay offshore taxes if one or more of the following conditions apply:

  • You own real estate or property offshore
  • You have a business running offshore
  • You have bank accounts in foreign banks
  • You have any other income source based out of your country of residence/citizenship

Apart from stacking penalties and interests, not voluntarily disclosing your offshore assets can lead to criminal prosecution. If that isn’t frightening in itself, your children could also face problems because of your debts.

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What actions should you take to avoid negative contact with the IRS?

The Offshore Voluntary Disclosure Program (OVDP) allows defaulting taxpayers to reveal their offshore assets and accounts. Penalties will be imparted, but it’s the best course of action. We recommend contacting the IRS as soon as possible. You might even be able to appeal against high penalties, which would not be an option without voluntary disclosure.

If you inherited offshore accounts or businesses that you and the IRS were previously unaware of, you can appeal in an attempt to have the penalties removed. Consider talking to a certified tax professional with experience in offshore and international taxes. Don’t take chances when faced with trouble from the IRS – you have too much to lose.

 

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The New and Improved IRS Offshore Amnesty Program

For some time, U. S. taxpayers were penalized with penalties for having offshore or international accounts. While usually seen as a way of evading taxes, there are in fact legitimate reasons for having offshore accounts. For those who held such accounts and didn’t declare them, the IRS would come down strongly, imposing penalties and even sometimes make an arrest.

In 2012, the IRS launched an Offshore Voluntary Disclosure Program (OVDP). This program gave taxpayers the chance to disclose their offshore accounts in exchange for lower penalties. However, this program had its shortcomings. While it was intended to target non-resident non-filers, United States residents with legitimate accounts would also appear on the IRS radar. The opt-out program was risky and not well received.

The good news is the IRS has revamped its Offshore Amnesty Program, which makes it easier for taxpayers to declare their foreign assets and comply with the rules. The IRS expanded and streamlined the process for U.S. taxpayers to their foreign held assets.

“This opens a new pathway for people with offshore assets to come into tax compliance,” said IRS Commissioner John Koskinen. “The new versions of our offshore programs reflect a carefully balanced approach to ensure everyone pays their fair share of taxes owed. Through the changes we are announcing today, we provide additional flexibility in key respects while maintaining the central components of our voluntary programs.”

The United States Department of Justice is now taking the misuse of foreign accounts and assets much more seriously. They will also begin investigating offshore financial institutions which may have assisted United States taxpayers in evading tax payments. The Foreign Account Tax Compliance Act (FATCA) went into effect on July 1st, 2014. Any offshore financial institutions with accounts held by United States citizens will be reported to the IRS. The ability to hide accounts is no longer possible.

The 2012 program not only applied to non-resident non-filers, but submissions were also subject to different degrees of review based on taxes owed and the taxpayer response to a “risk” questionnaire. This revamp however, will be available to certain resident United States taxpayers, and brings with it the following changes:

  • Eliminating a requirement the taxpayer have $1,500 or less of unpaid tax per year;
  • Eliminating the risk questionnaire;
  • Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.

Eligible non-resident United States taxpayers will have their penalties waived, and eligible resident United States taxpayers will have to pay only a miscellaneous offshore penalty, equal to 5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of the offshore financial assets that caused the tax issue.

The Offshore Voluntary Disclosure Program (OVDP) itself has also undergone the following changes:

  • Requiring additional information from taxpayers applying to the program;
  • Eliminating the reduced penalty percentage for certain non-willful taxpayers as part of the expansion of  more streamlined procedures;
  • Requiring taxpayers to send account statements and pay the offshore penalty with the OVDP application;
  • Enabling taxpayers to send records electronically rather than on paper;
  • Increasing the offshore penalty from 27.5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} to 50{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b}) if it is determined that the financial institution where the taxpayer holds an account is under investigation by the IRS or Department of Justice.

While the IRS is giving the taxpayer more options to voluntarily disclose the details of offshore accounts, the offshore penalty has almost doubled to 50{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} from the previous 27.5{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b}.

There are there are now more options, however, it is still possible for past offences to be detected. You can either quietly disclose your assets in an attempt to comply with tax rules or choose the safer voluntary disclosure route. The new and improved program should have the overall result of less penalties. You will be better off proactively revealing your foreign assets up front. The alternative is is to risk becoming a target for huge penalties or possible criminal prosecution.

So if you’ve been considering disclosing your foreign assets and accounts, now is definitely the best time!

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Offshore International Tax Problem Relief

All American individuals or businesses who earn income offshores are required to pay taxes. This applies not only to citizens but also to holders of green cards, even if one isn’t currently onshore.

If you owe back taxes from funds in offshore bank accounts and don’t disclose it, the IRS will one day enforce collection practices of the highest order. Apart from high penalties, interests, and possible criminal prosecution, not declaring foreign assets and bank accounts also adversely impacts the US economy.

Offshore International Tax Problems Help

There has been a recent upsurge in the number of individuals and businesses who attempt to hide their offshore sources of income in an attempt to evade taxes. This is a federal offense with serious consequences.

If you missed the October 15, 2009 deadline for tax amnesty, you can file for tax returns and voluntarily disclose your assets. If you don’t, you significantly increase the risk of criminal prosecution. A recent increase in penalties was instated, changing the rate from 27.5% to 50% of the account balance.

The IRS now has the power to gain information about US citizen’s offshore bank accounts from major banks around the world. Furthermore, if you’re already under audit, you cannot apply for the OVDP (Offshore Voluntary Disclosure Program).

It is also possible that you weren’t aware of accounts held by family members, and, because of inheritance, they are now yours. This is considered a non-wilful offense, and the consequences aren’t as severe. The best course of action is to disclose your accounts and assets as soon as possible. However, help from an expert is advised. A certified and experienced tax professional with knowledge of offshore and international varieties will help you navigate the process.

The tax experts at Long Island Tax Resolution are equipped to examine situations where income sources from offshore businesses create tax problems. After analyzing your situation, we will help you resolve any tax problems with offshore or international sources. Contact us today to learn more.