The Perils of DIY Offshore Compliance
Aug 30, 2017
The internet provides a myriad of wonderful benefits, but do it yourself ("DIY") offshore compliance is most certainly not one of them. DIY compliance involves relying upon online articles and DIY guides to file your own FBAR forms and/or Form 8938 (among a slew of other forms that accompany those, depending on your disclosure strategy), as well as attempting to enter yourself into one of the various IRS offshore disclosure programs like the Offshore Voluntary Disclosure Program or the Streamlined Offshore Voluntary Disclosure Program. To determine if you have an obligation to file the FBAR form and/or Form 8938, use the FBAR Wiz to quickly and anonymously do so. Just click on "launch the app" above. Such DIY options seem inviting, but they pose the risk of lulling taxpayers into a false sense of security. It is important to bear in mind that behind any FBAR (along with Form 8938 and other tax forms) exists a complete body of law (including case law, statutes, regulations, rules of practice, etc.) that can significantly impact your rights and perils of large penalties and, in the worst case, a referral for criminal prosecution for wilful evasion of taxes. Filling out the FBAR form and Form 8938 involve numerous options and decisions that must be navigated to complete and file an application. At a minimum, this requires you to invest the time and effort to learn the interface. Beyond that, it can also be risky to go-it-alone unless you have at least a basic understanding of the underlying substantive law. While there are websites that contain a wealth of reference material in that regard, how much time are you realistically willing to take to educate yourself on the substantive law in order to know the significance of selecting one option over another — or the significance of the information you enter into the form? If your attempts prove unsuccessful, at the very least you risk the time and money you invest in your ill-fated attempt - not to mention that massive potential penalties (tens of thousands of dollars, at least). In addition, you may also risk losing or impairing rights to which you might otherwise have been entitled. Most serious of all, you risk potentially escalating what might have been an otherwise straightforward case to the realm of criminal prosecution due to an inadvertent mistake or omission. Admittedly, in some cases, legal counsel is not necessary to correct a minor mistake on a previously filed FBAR or to file a delinquent FBAR if the failure to file was an innocent mistake. However, a U.S. person concerned that the government may view the errors or omissions as “willful” should engage legal counsel to fully evaluate the facts and circumstances, assess the potential civil and criminal exposure, discuss the benefits and burdens of these various options, and explore the optimal solution in each case. A U.S. person with an unreported account at a Swiss financial institution or in a jurisdiction which the U.S. government considers a tax haven, or who maintained an account at a foreign financial institution currently under investigation for assisting U.S. taxpayers with evading tax, should immediately consult with legal counsel, regardless of whether he or she believes the prior conduct was willful. The IRS maintains on its website a list of financial institutions that are publicly known to be under investigation: http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators. The attorney-client privilege provides a critically important protection allowing any analysis of whether the person's conduct may be viewed by the government as willful or criminal to remain protected from disclosure to the IRS. Bear in mind that communications with accountants or nonlawyer tax practitioners in a potential criminal tax matter are not covered by any attorney-client or similar privilege. None of these correction options is available to a U.S. person who is already under IRS audit or whose noncompliance has already been identified by the government. Thus, time is of the essence to correct FBAR mistakes, particularly in light of new requirements on foreign banks to disclose U.S. account holders to the IRS under FATCA. What you really need to consider is this — sure you may be able to save a few bucks by populating the fields of a generic form yourself, but is it really worth risking the steep penalties and risk of criminal prosecution for errors on your FBAR form or Form 8938? If you want peace of mind – hire an expert.