When 11.5 million files leaked from a prominent Panama-based law firm, the leaked files revealed the secret ownership of confidential offshore accounts by a number of wealthy individuals. While having offshore accounts is not, by itself, unlawful, many of the holders of these offshore accounts were not in compliance with tax laws.  Failing to report offshore accounts and not paying taxes on investment income held in offshore accounts can have serious consequences.

The use of offshore bank accounts has long been a common tactic by investors who want to keep some of their wealth private and who may not want the IRS to know about every asset they own.  In recent years, however, countries nationwide have been cracking down on the practice of offshore banking as a method of tax evasion or tax avoidance. This has made it difficult or impossible to keep offshore accounts private and to ensure the accounts do not come to the attention of taxing authorities.

If you have undeclared financial accounts offshore, you have probably heard of the Offshore Voluntary Disclosure Program (OVDP) and you may have considered taking part in the program. Since OVDP started in 2009 to allow people who did not file a Report of Foreign Bank and Financial Account to come forward and report their accounts-- while minimizing penalties-- more than $9.9 billion in taxes, interest, and penalties has been paid by more than 55,800 OVDP participants. May have chosen to participate in the OVDP because penalties can otherwise be draconian for undeclared offshore accounts, with some taxpayers facing penalties of 150 percent of the account balance.

A FATCA letter typically comes from a Foreign Financial Institution (FFI). The letter will contain a request for information about your tax filing status within the United States. Along with the letter, you may also receive certain forms that your FFI requests be returned, including a W-8 or W-9 form. The purpose of these forms is to confirm your status as a United States taxpayer so the FFI can make a determination regarding whether the bank must provide information about your accounts to the United States taxing authorities.

FinCEN Form 114 is a form that must be filed by certain U.S. connected persons who have an offshore account or who have signature authority on any kind of offshore account. FinCEN Form 114 may be better known as a Report of Foreign Bank and Financial Accounts (FBAR). The form must be filed annually by those who have accounts that must be reported.