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IRS Takes a New Look at Quiet Disclosures and Updates Tax Return Review Policies

After reviewing amended tax returns for the 5 year tax period between 2003 and 2008, the GAO (Government Accountability Office) advised the IRS on numerous quiet disclosures it had missed and began to instruct the IRS on how to catch more future quiet disclosures and tax returns with one or more indications of foreign account income so that the maximum of penalty revenue for late tax returns and past due FBARs may be collected from international American Expats.

Billions Dollars of Tax Revenue Lost to Unenforced FATCA Laws

The GAO recently issued a report issued to the IRS entitled “Offshore Tax Evasion:  IRS Has Collected Billions of Dollars, But May be Missing Continued Evasion”.  In this report, the GAO went into detail about the manner in which taxpayers with past due FBARs and missing tax returns had been filing old information quietly (without an attachment, letter, phone call or other correspondence to indicate its past due status) or as new financial accounts altogether.  Until a recent investigation was launched by the GAO, this was a surprisingly beneficial method for taxpayers with past due tax returns or unfiled FBARs to become current with US tax and reporting obligations while escaping the high fees associated such  compliance steps.

For those of you who are thinking, “Wow, great idea; I didn’t know I could do that”…You can’t.  Fact is:  You were never supposed to be able pull the wool over the eyes of the US Government.  You have to keep in mind that the Offshore Voluntary Disclosure Initiatives (OVDIs) that have been issued by the American Government in recent years have all been for one common goal:  To collect as much revenue as possible in late fees, failure to file fees, and seizing of assets.

GAO Makes IRS Agree to Increase Past No-Compliant Tax Payers and Foreign Financial Account Holders

The GAO’s top concern about the IRS having allowed such a rampant number of silent disclosures to take place is that the United States is losing billions of dollars worth of revenue.  In order to prevent such a high loss to occur in the future, the GAO offered a few tips to IRS representatives to efficiently and systematically identify US Expats who are not compliant with FATCA laws.

Perhaps the most significant suggestion was to review Schedule B for foreign account information and see if the ‘filing for first time’ box is checked.  If that box has been, it should mean that  no foreign accounts were owned and operating in previous years – if there was a requirement and no filing, both an amended tax return and a submission of an FBAR for each missing year would be required .   Also, the IRS was constructed to ‘use its Manpower wisely’ when seeking new and effective methods of tracking down international foreign accounts and tax evaders.  The IRS is taking heed to such suggestions and fully expects to uncover a significant of non-reported financial accounts in coming years.

Now that numerous quiet disclosures have been identified and measures have been taken to catch future disclosures of this nature, your odds of successfully following in the footsteps of your ingenious predecessors decrease dramatically.

The safest way to avoid current and future financial and criminal penalties remains to take advantage of what will be the final OVDI as we know it before ramped up FATCA efforts make it next to impossible to hold US income anywhere on the globe.