With every new presidential administration, there are likely to be changes in federal tax policy. Some of these changes can radically impact the way that Michigan taxpayers will file their taxes and report on earnings.
The Internal Revenue Service will likely continue to crackdown on alleged failures to report offshore income and foreign assets. Any taxpayer with over $10,000 invested in foreign bank accounts could be a target for the IRS. Tax penalties for noncompliance are significant. Not only can the IRS take 50 percent of any value of the account, the agency may also assess fines, penalties and possible criminal charges.
A recent federal court decision demonstrates the determination of the IRS in tracking down offshore revenue. The federal court authorized the agency to use a John Doe summons in order to locate information about American citizens holding offshore accounts in Panama. Specifically, the IRS desired to use such a summons to locate accounts linked to debit cards.
The IRS has at its disposal a large number of options for pursing offshore account information. For example, there was a recent federal court action that allowed for the IRS to serve a John Doe summons to access offshore account information tied to debit cards. The IRS uses such a tool to access information that could possibly reveal violations of tax laws.
Many U.S. citizens, including Michigan residents, put their offshore savings into deferred compensation plans. Taxpayers may do this in an attempt to defer otherwise taxable income to avoid paying at current tax rates. In fact, many individuals with offshore accounts have been doing this since the 1990s.
While the filing deadline for a report of a foreign bank account (FBAR) has traditionally been June 30, the Financial Crimes Enforcement Network (FinCEN) announced an extension of this filing date to Oct. 15. There is no requirement for a specific request for the extension by the taxpayer. Apparently, this extension will also be permanent. The form for filing such reports is a FinCEN 114.
The U.S. Treasury has long tried to prevent inversions and cross-border avoidance maneuvers. A tax inversion occurs when an American corporation relocates to a nation with lower tax rates while continuing extensive operations in our country.
Recent actions document IRS efforts to target offshore revenues. It appears that offshore voluntary compliance efforts now exceed more than $9.9 billion in collected taxes, penalties and interest since 2009.