The IRS reporting obligation and the obligation to pay tax, are a very heavy burden on every citizen. These burdens become even heavier in cases where the person in question holds dual U.S. citizenship or in a case where Israeli citizens invest in the United States. The number of intricate reporting forms that need to be filled out increases, the payment obligations may increase as well and the whole process is riddled with complex bureaucratic processes.
The array of complex bureaucratic processes and heavy tax burdens causes many to try to evade the duty of reporting tax and the obligation to pay the tax. However, the U.S. Tax Authority anticipated this tendency and created an enforcement mechanism that includes increased sanctions and fines for failing to meet reporting and tax payment obligations.
So if you’re considering whether to meet your obligations to the U.S. Tax Authority, you should read the following article below.
The U.S. Internal Revenue Service (IRS) is the United States Federal Taxation Authority. This authority has the power to enforce the many tax provisions constituting the U.S. law. In order to ensure strict enforcement, severe penalties and sanctions have been imposed on those who fail to report and those who fail to pay tax.
Fines and penalties for lack of reporting or for incomplete reporting – IRS reporting
The dates for filing income tax reports are fixed to the law and vary according to the taxpayer’s characteristics. Failure to meet these dates may result in a fine of 5% of the tax liability for each month or part of the month, and up to 25% of the tax liability. Filing an incomplete or unreliable report in an attempt to reduce tax liability may result in a fine of 20% of the total tax amount.
Tax liability, of course, accumulates interest. The interest is calculated daily on the basis of the annual interest rate and stands at a rate of about 6% of the total tax amount.
Fines and penalties for lack of reporting / incomplete reporting – FBAR report to the US Treasury Department
In addition to the IRS reporting obligation, U.S. citizens who hold financial accounts whose cumulative amount exceeded $10,000 during the year must report these accounts separately. Failure to comply with this reporting obligation also leads to heavy sanctions that can reach up to $10,000 for each account that is not reported.
Beyond the sanctions described above, both for the lack of reporting to the IRS and for the lack of reporting to the US Treasury Department, failure to comply with these burdens is a criminal offense that may result in prosecution. In cases of significant liability, another possible sanction is the deprivation of U.S. citizenship.
IRS fines and penalties – failure to pay the tax debts
U.S. citizens are required to pay tax advances during the year. Failure to pay these advances results in a fine of no less than $1,000. Failure to fully pay this tax is also subject to a fine of 0.5% of the total tax amount.
Naturally, in the case of failing to pay the tax altogether, interest is accrued as described above – interest calculated daily on the basis of the annual interest at a rate of approximately 6 percent.
Failure to comply with the filing dates of the annual income tax report
– A fine of 5% of the tax liability for each month (or part of it), up to 25% of the total tax amount.
– Interest accumulation is calculated daily on the basis of the annual interest rate, about 6%.
– Criminal sanctions.
– Deprivation of citizenship
Non-compliance with the filing dates of the FBAR report
– Fine of up to $10,000 for any unreported foreign account.
– Criminal sanctions
Non-compliance with the payment of tax liability:
– Not paying advances, fine of over $1,000.
– A fine of 0.5% of the total tax liability.
– Accumulation of interest calculated daily on the basis of annual interest, about 6%.
Voluntary Disclosure Program
It is the place to comment that if you did not comply with the reporting obligations in previous years, there is a voluntary disclosure process in which the reports are submitted retroactively, without penalties, fines, and other sanctions.
Since 2014, U.S. citizens who have not met their reporting obligations, both living in the United States and those living outside the United States and, can have a fresh start with U.S. tax authorities and retroactively report all their income.
As for American citizens who do not reside in the United States, it is possible to fill out the report retroactively without being subject to any fines or penalties. To do this, the applicant must include a reason for not reporting properly, declare he had good intentions, and submit tax reports for the preceding three years.
In summary
The U.S. tax burdens are extremely heavy and the consequences for failing to comply with them are heavy criminal and economic sanctions. Therefore, we recommend that the tax reports be accompanied by expert accountants specializing in the American tax provisions.
The dedicated and skilled team of MasAmerica’s accountants has extensive experience and in-depth familiarity with the American tax provisions. These specialists will be happy to be at your disposal, both in filing the report and conducting a voluntary disclosure process.
