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Overseas financial institutions must disclose U.S. accounts

The Internal Revenue Service continues to make changes to its amnesty programs for U.S. taxpayers who hold offshore accounts.

A program released in 2012 slapped owners of undisclosed foreign accounts with massive fines. However, this is a new day, and guidance issued by the IRS in 2015 provides the least onerous penalties yet.

The 2012 program

Many people were unhappy with the so-called Streamlined Program of 2012, which was only available to those with nonresident, nonfiler status. The program featured various degrees of review based on the amount of tax that was owed and required the taxpayer to fill out a risk questionnaire. Americans living abroad complained that because they created their foreign accounts for legitimate reasons, they should not suffer penalties for reporting slip-ups.

The 2014 update

In 2014, the IRS updated the Streamlined Program to include more U.S. taxpayers who are living overseas. The agency eliminated the risk questionnaire and the rule that the taxpayer had to have $1,500 or less annually in unpaid taxes. In the revised program, a taxpayer also had to certify that "nonwillful conduct" caused any failures in compliance. The program allows U.S. taxpayers residing on foreign soil to have all penalties waived.

On to 2015

Even with the changes that appear to benefit more people, the IRS cracks down on those who do not disclose offshore accounts. As of 2015, U.S. law requires foreign financial institutions to report their U.S. account holders. Agreements to this effect have been struck with over 100 countries. However, authorities have lowered penalties on undisclosed accounts somewhat, although the amount of a fine will be based on the amount of money in the account under scrutiny and the number of years an owner did not disclose the account.

Seeking legal help

People should keep in mind that the United States tax system exists everywhere in the world, and a U.S. taxpayer must report any and all income no matter where he or she earned it. For those faced with an offshore account problem, an attorney experienced with tax matters involving foreign accounts can help them understand the law, what is at stake and how best to handle their situation.

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