2019 Year in Review: Cryptocurrency, Offshore Bank Accounts, and FATCA Enforcement

There was some big news in the world of federal tax law in 2019. From the Internal Revenue Service (IRS) announcing that it would begin actively targeting cryptocurrency investors to the European Union removing several countries from its list of disfavored tax havens, tax-related news made headlines around the globe.

During 2019, we also covered many topics on our blog that, while not necessarily newsworthy, are of particular importance to individuals and businesses that hold assets offshore. This continues to be a highly-misunderstood area of federal tax law, and we are continuing to see active enforcement by the IRS and other agencies. Here is a look back at 10 of our top articles from 2019:

1. The Pros and Cons of Moving Money Offshore

While moving funds into a foreign bank account has a number of potential benefits, it carries certain risks as well. Although the popular perception seems to be that moving money offshore is a simple way to avoid federal tax liability in the U.S., income earned on foreign assets is still subject to income tax under the Internal Revenue Code. Foreign account holders must submit annual filings to the IRS (called “FBARs”), and non-compliance can lead to substantial penalties.

2. Avoiding IRS Collection With Installment Agreements

Whether you failed to report your foreign financial assets to the IRS or you simply could not afford to pay your end-of-year tax bill, if you owe money to the IRS, you need to pay as quickly as possible in order to avoid liens, garnishment and other aggressive collection efforts. But, what if you cannot pay within the time the IRS has allotted? For many taxpayers, negotiating an installment agreement is a good option. If you owe less than $50,000, you may be eligible for a guaranteed installment agreement or a streamlined installment agreement; however, there are various other options as well.

3. Impact of FATCA on Accidental Americans

For U.S. citizens who are living abroad without any significant ties to the United States, the obligation to report income and pay tax to the IRS comes as a surprise. Many of these “accidental Americans” are even more surprised when they learn that they are at risk for penalties that include fines and prison time. However, this is a very real concern for many individuals, including those born to foreign parents in America, those born to American parents overseas, and those who have moved abroad without formally renouncing their U.S. citizenship.

4. Foreign Bank Accounts: Penalties for Tax Reporting Violations

For U.S. taxpayers with foreign bank accounts, understanding the FBAR requirement is of critical importance. Federal law imposes penalties for both willful and non-willful failures to file, with fines starting at $10,000 for each unreported account for each year that the taxpayer fails to file. If the IRS determines that you have willfully failed to disclose your foreign bank accounts, the penalties increase to the greater of (i) $100,000, or (ii) 50 percent of the account value. So, this begs the question, do you have to file?

5. Unreported Offshore “Bad Bank” Accounts: How a Washington D.C. Tax Lawyer Can Help

The penalties we just discussed apply in cases where the offshore bank in which the taxpayer’s assets are held is in good standing with the United States. But, what if you have an offshore account with a “bad bank”?

Under the now-expired Offshore Voluntary Disclosure Program (OVDP), the penalties for failing to report assets held by a “bad bank” were severe, but at least they were straightforward (increasing from 27.5 percent to 50 percent). However, under the new voluntary disclosure guidelines, the IRS has discretion to impose penalties it deems appropriate. This means that taxpayers can face substantial liability if they fail to protect themselves, and this makes it especially important to engage the services of an experienced federal tax lawyer.

6. What You Need to Know if the IRS Conducts an Audit of Your Washington D.C. Small Business

Many small business owners assume that they can fly under the IRS’s radar. This doesn’t necessarily mean that they intend to intentionally underreport and underpay their federal tax liability, but it may mean that they put less effort into ensuring that their annual returns are accurate and complete. This can be a costly mistake. The IRS routinely conducts small business audits, and small businesses that cannot substantiate their federal returns can face fines, interest, and other penalties.

7. How a Washington D.C. Tax Lawyer Can Help You Choose the Right Offshore Voluntary Disclosure Option

Now that the OVDP has expired, U.S. taxpayers must rely on other alternatives when faced with obligation to voluntarily disclose their offshore holdings. What are these alternatives, and which one will provide you with the most protection? Here’s what you need to know.

8. IRS Issues 10,000 Letters to Cryptocurrency Holders, Warns of Devastating Penalties if Tax Obligations Go Ignored

Over the summer, the IRS sent letters to thousands of cryptocurrency investors warning of the potential for audits and criminal investigations for those that failed to report their taxable income from cryptocurrency transactions. Of course, this is easier said than done, and many individuals who own Bitcoin, Ethereum and other digital currencies are suddenly finding themselves very, very exposed.

9. A Quick Guide to FATCA Law

In September, we published a guide to complying with the Foreign Account Tax Compliance Act (FATCA). The guide provides an overview of FATCA, when the statute applies, and what U.S. taxpayers need to do in order to avoid substantial penalties. You can view the guide here: A Quick Guide to FATCA Law.

10. UAE, Switzerland, Mauritius and Marshall Islands are Among Countries No Longer Considered Tax Havens by the European Union

The European Union (EU) has long maintained lists of countries and territories which are subject to strict transactional controls as a result of being labeled as tax havens for foreign taxpayers. In 2019, the EU removed the United Arab Emirates (UAE) and the Marshall Islands from its “blacklist” (those countries which are actively subject to transactional controls), and it removed Switzerland, Mauritius, Albania, Costa Rica and Serbia from its “grey list” (those countries which are being monitored for potential blacklisting). However, some critics argue that these countries still haven’t done enough to prevent tax avoidance schemes.

Contact Thorn Law Group in Washington D.C.

Do you have questions about your federal reporting or tax payment obligations? Are you concerned about facing an IRS audit or criminal investigation in 2020? To speak with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, in confidence, call 202-349-4033, email or request an appointment online today.