By Mandy Cao
For Northwest Asian Weekly
My name is Mandy, and I am an IRS Enrolled Agent (EA) and the owner of an accounting and taxation office in Tukwila. During the past tax filing season, I once again realized the fact that the majority of U.S. tax payers are not aware of all their tax reporting duties.
For instance, U.S. taxpayers must report their worldwide incomes, including earnings on offshore bank accounts and assets as part of their taxable income. In addition, they must also disclose the existence of ownership or interests in such accounts in their annual tax declarations to the IRS.
Should the aggregate amount of such accounts exceed $10,000, a report must also be filed by June 30 of each fiscal year with the United States Department of Treasury. Neglecting or willfully ignoring these responsibilities can create severe financial and criminal liabilities that far exceed the consequences of missing general tax filing deadlines.
Since many individuals who read this paper are members of international communities, I decided to give you a quick rundown.
Until 2001, offshore bank reporting duties had a low profile and investigations and penalties related to these accounts were applied on just a few, extreme cases.
Following the 9/11 terrorist acts, however, this situation changed dramatically. The government started to focus on unreported offshore accounts, assets, and related financial transactions, since they could represent suspicious money laundering activities, possibly related to the financing of global terrorism, business fraud, tax evasion, or foreign and domestic corruption schemes.
Today, U.S. financial institutions, including foreign-owned banks that operate in the United States, credit card companies, casinos, and businesses like car dealerships, have to report offshore activities and local cash transactions in excess of $10,000 within 15 days to the Department of Treasury or risk losing their business licenses.
Today, it has literally become impossible for individuals who own or have an interest in offshore assets to hide any transactions on these accounts from the authorities.
This year in February, the IRS created a unique opportunity for delinquent tax payers called the 2011 Offshore Voluntary Disclosure Initiative (OVDI). Under this program, tax payers with undisclosed ownership or interests in offshore accounts are offered a last-minute opportunity to fulfill their legal responsibilities by voluntarily disclosing their offshore accounts to avoid incurring penalties. The deadline to disclose is Aug. 31.
Once this last-minute opportunity expires, delinquent tax payers will become exposed to the full extent and severity of the various laws in place.
The number of years that the IRS will review will no longer be limited to eight years, the financial liabilities in form of multiple forms of penalties, back taxes, and interest could exceed to the amount of the undisclosed assets. The risk of a criminal investigation that can result in prison terms will also drastically increase.
Offshore funds and related issues are not topics to discuss with friends and colleagues unless they are professionally competent individuals.
If you have not already done so, it is time to contact your tax or legal professional to review your potential liabilities and to gain peace of mind. Not doing so could result in severe consequences, either to you or to members of your family who would inherit your neglected liabilities.
You owe it to you and your family members to address offshore account issues prior to Aug. 31, before the door to this last-minute opportunity closes. ♦
Mandy Cao is an IRS Enrolled Agent (EA) and a certified accounting specialist. She is also a member of the National Association of Enrolled Agents (NAEA) and the Washington Association of Accountants (WAA), and she is a certificated QuickBooks Pro-Advisor. She is the owner of YMC Tax & Accounting Co. in Tukwila.
She can be reached at 425-318-7662 or ymctax.com.