US citizens and resident aliens are taxed on their worldwide income, regardless of where they live or where the income is being originated. In the globalized era we are living in, several Americans are moving overseas, and several foreign individuals are establishing residence in the US. Although they understand the basic concept of filing and paying taxes where the income is being generated, a lot of US nationals do not know that Uncle Sam taxes the income they receive abroad. This is particular true when we are talking about foreign nationals established in the US who still have ties in their motherland.
Trying to avoid the IRS forever will probably not work in the long run and will definitely work against you if and when you get caught. The IRS has entered into several Intergovernmental Agreements (IGA) under the Foreign Account Tax Compliance Act (FATCA), allowing the US to get financial information from just about any bank around the world that caters to US citizens.
If the Department of Treasury or the IRS finds out that you are not reporting your income, you can be charged criminally or civilly. This can cause you to face jail time, a hefty fine, or both.
Incarcerating and punishing US taxpayers is not in the Government’s best interest. The IRS cares more about transparency than about punishing, and will only punish in cases of severe noncompliance.
What are Amnesty Programs and what kinds are out there?
Amnesty programs are programs created by the IRS that help taxpayers to become compliant with the US tax laws by offering reduced penalties.
The two main programs currently in place are the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Procedures. Although, this may not be the case for long because in September of 2018, the OVDP will be shutting their doors. The IRS claims that this is due to increased knowledge about the obligations of reporting foreign income.
But what is the OVDP, exactly? It is a voluntary disclosure program that is designed to help US taxpayers to disclose their foreign income and/or foreign financial assets. The OVDP provides taxpayers protection from criminal liability and reduced penalties that are not available to those that are facing examination or criminal investigation.
The Streamlined Procedures, which will remain after the OVDP closes, is available to those taxpayers who can show to the Government that their conduct was non-willful. It imposes a 5% penalty (or 0 penalty if the taxpayer resides abroad and satisfies the non-residency requirement imposed by the IRS) compared to a 27.5% penalty imposed by the ODVP.
How do I participate in one of the Programs?
You should contact an experienced international tax attorney to assess your situation and help you determine which amnesty program is suitable for your situation.
If you have unreported foreign income or undisclosed foreign financial assets, we urge that you take action before the IRS comes knocking at your door.