Tax solutions for US citizens in the UK

We at Tuchbands have just been through this year’s IRS return filings for our US citizen clients. We work closely with a specialist firm of US accountants based in UK to ensure that our clients receive a seamless service for filing both a UK and US tax returns.

One feature of the US tax filing is the set of forms known as FBARS which stands for Foreign Bbank and Financial Accounts Report.

United States persons are required to file an FBAR if:

  1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. The reporting deadline is 30th June in relation to bank accounts held in the previous calendar year.

On Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program   (OVDP) following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets another opportunity to resolve their tax and information reporting obligations, including the FBAR.

Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

Generally, under the OVDP the penalties reduce to 27.5%.

Earlier in the year we carried out a small survey and contacted a number of US lawyers specialising in IRS tax. We asked them what the implications were for not following an FBAR. Most of the answers we received were that there could be criminal sanctions or severe penalties. The attorneys recommended that their clients enter the offshore voluntary disclosure program, described above and the minimum deposit is required before they were prepared to take on the case ranged from $15,000 to $25,000. This is clearly a big moneyspinner for US attorneys.

Whilst we cannot comment on the merits of whether or not one should enter the OVDP the message that this gives is that the penalties are incredibly severe (and some would say disproportionate given that the offence is one of not disclosing bank accounts which is not the same does not disclosing taxable income).