Back in 2009, the United States began offering a new approach in getting US Persons (this phrase includes United States Citizens, Green Card Holders, and Permanent Residents) with large overseas financial accounts to become compliant with FATCA (Foreign Accounts Tax Compliance Act) reporting regulations. This new approach was in the form an amnesty program referred to as: OVDI, Offshore Voluntary Disclosure Initiative.
Through the OVDI, US Persons with one or more foreign financial accounts with a total balance of $10K or more who had not reported these accounts on Form TD F 90-22.1, or FBAR (Foreign Bank Accounts Report) in previous years were able to ‘come clean’ with reduced penalties and a promise of no criminal charges being filed.
The program was so successful in 2009 that it was offered again in 2011 and a third time in 2012. For the time being, the 2012 OVDI is still open, but recent decisions by the IRS has US Persons with foreign financial accounts somewhat apprehensive about placing faith in the program.
Since 2009, the general position of the IRS and Department of Treasury has been: Come to us before we find you. With the additional resources and international manpower that has been added to the IRS in recent years for the purpose of tracking down non-compliant US Persons across the globe, most tax professionals have urged individuals to take advantage of the OVDI before it was too late. For, if the IRS places you under investigation before you file missing FBARs for previous years, you no longer qualify for any deal you would have gotten from the OVDI. This would leave you open for penalties of up to 50% of your foreign assets and the possibility of serving time in a federal penitentiary.
It has been a common practice for tax attorneys to contact the IRS on behalf of their clients and gain pre-clearance for amnesty through the OVDI. The attorney would provide minimal details about the taxpayer and the Criminal Investigation Division of the IRS would run the name provided and come back with an answer – usually being, “Yes.”
For a group of US Persons holding accounts at the largest bank in Israel, Bank Leumi Israel Ltd, however, this “Yes” was rejected when all was said and done. Many of the people holding accounts at Bank Leumi le-Israel Ltd had filed missing years of FBARs and found themselves subject to higher penalties than were expected. The reasons for this and the motives of the IRS remain unclear, and the only solid records of anything at this point are the faxes which were sent to tax attorneys by the IRS stating that after further review, the taxpayers in question were disqualified.
There is speculation that Bank Leumi Israel Ltd may be under investigation by the IRS and it was a mistake to ever offer amnesty to any of its account holders. It’s also possible that there have been recent breaks in an active investigation which has caused the IRS to rethink its position on previously approved amnesty deals. Whatever the reason(s), both tax attorneys and non-compliant foreign account holders who were considering entering the OVDI are left to ponder their very limited options.
Nobody is certain what fate will befall Bank Leumi or its US Account Holders, but many tax attorneys speculate that the penalties won’t be so severe that the integrity of the OVDI is irreversibly tainted. While many non-compliant foreign account holders are interested in waiting to find out what course of action the IRS will take Bank Leumi account holders (if any), they also know that by the time they find out the OVDI may no longer be an available option.
If you have foreign financial accounts with a value of more than $10K, you haven’t filed an FBAR in one or more previous years, and you’re not sure what actions you should take, make sure to get in touch with a qualified international tax professional to assess your situation and guide you in the right direction.