Speaking to SMSF Adviser, Moodys Gartner director, US tax law, Marsha-laine Dungog explained the IRS runs a voluntary disclosure program for US taxpayers with undisclosed foreign bank accounts.
“If you're a US taxpayer with a foreign bank account, that you haven't reported for ages, the offshore voluntary disclosure program (OVDP), allows you to voluntarily disclose those bank accounts with substantially reduced penalties for disclosure all these years, but before you could enter the program, you had to get a pre-clearance,” said Ms Dungog.
The taxpayer had to contact the criminal investigation division of the IRS and ask to be admitted into the program, she said.
“They would not admit you into the program if they were already looking into your file [however],” she said.
There was also another group of taxpayers who applied for pre-clearance but before they were accepted into the program they withdrew.
Ms Dungog said the IRS is targeting both these groups of taxpayers in a new campaign aimed at ensuring that these taxpayers are now compliant.
“If this tax payer was denied entry into the program, or they withdrew from the program, the IRS has a record of who they are, so from 2009, to the current year, which is eight years, the IRS is going to check if they've become compliant on their own,” she said.
“If they're still not compliant, but it's not that bad, then the IRS will send them what they call a soft letter. The worst treatment is that the IRS will get back to this taxpayer, subject them to a full-length examination, and possibly subject them to a criminal investigation, which is the worst form of investigation.”
If a taxpayer didn't get into the program, they should have cleaned up their act, because “otherwise the IRS is definitely looking into their files”, she warned.
The IRS is also introducing a whistle-blower incentive as part of the campaign, which is aimed at accountants, lawyers and anyone who has been assisting a taxpayer, which would include professionals here in Australia with US taxpayer clients.
“The IRS is trying to get professionals to step forward and basically rat on their clients,” she said.
Ms Dungog said it is still unclear whether unreported superannuation will be included in the campaign.
“Superannuation is a financial account, and under the Foreign Bank and Financial Accounts (FBAR) definitions of what constitutes a financial account, so it could conceivably include superannuation,” she said.
“I think what they're going to do because the IRS has not taken a strong position on superannuation is that they may create an exception if what was not reported was the superannuation. I think that's the fair result that the IRS would want to do,” she said.