A new, attractive window of opportunity for US taxpayers to voluntarily disclose offshore income and/or assets

לצפייה בעמוד זה: עברית

US taxpayers holding accounts in banks that are under investigation of US tax authorities are advised to file their report by August 3, 2014

 

July 2, 2014

 

Important modifications and additions to the IRS offshore disclosure initiatives became effective on July 1, 2014, allowing US taxpayers and expatriates to enter the voluntary disclosure program. US citizens and residents who failed to report their income over the last few years and have offshore bank accounts and assets are strongly encouraged to consider entering the new program and avoid heavy penalties.

 

As a rule, US tax law requires US citizens and residents to report annually two main types of information to the IRS:

 

1.   Report of Foreign Bank and Financial Accounts (FBAR) (by June 30 every year), including checking accounts, investment accounts, pension funds, education funds and even accounts where the taxpayer is only a signatory.

 

2.   Filing an annual tax return and disclosing income from US and other sources, including from interest, dividends, rent and capital gains.

 

In general, an individual US taxpayer who failed to make the above reports had two main alternatives for voluntary disclosure:

 

(1) The Streamlined Procedures – Taxpayers with unpaid federal tax in each of the last three years before the date of the voluntary disclosure was $1,500 or less are required to report their income in the previous three years and foreign bank accounts in the previous six years; and

(2) The Offshore Voluntary Disclosure Program (OVDP) – All other taxpayers were required to report their income and offshore bank accounts for the previous eight years.

 

The new Streamlined Procedures have eliminated the requirement that an eligible taxpayer have $1,500 or less of unpaid tax per year. On the other hand, the new program requires a taxpayer to declare that the failure to report was unintentional and not as a means to evade tax.

 

The elimination of this limit opens a real window of opportunity for taxpayers who unintentionally failed to report their assets and income, but so far have not met the $1,500 limit.

 

Now, those taxpayers will be eligible to the Streamlined Process without the $1,500 limit.

 

Taxpayers who will continue to be delinquent on the offshore income and assets will be exposed to hefty penalties. For this purpose, taxpayers who have accounts with offshore financial institutions that are already under investigation of US authorities under FATCA, including banks in Israel, will be exposed to even heavier penalties if they do not take advantage of this modified program and report before August 3, 2014.

  

For more information, please contact the PwC Israel tax practice.