Closing your foreign bank account today will not necessarily solve your disclosure problem. On the contrary, it could make things worse under the current regulatory environment.
Here is what you need to do in order to have stress-free foreign accounts:
- You must report your worldwide income: You must report your worldwide income on your U.S. income tax return. And, if you have an interest in a foreign bank or financial account you must check “yes” (on Schedule B). This is true even if you live outside the U.S. or pay foreign taxes on your foreign income.
- You must file your FBAR: Tax return filing alone isn’t enough. All U.S. persons with foreign bank accounts exceeding $10,000 at any time during the year must file an FBAR by each June 30 of the following year.
- There is a new form: Now with your tax return, you may also need to file an IRS Form 8938 to report your foreign accounts and financial assets.
- There are Big Penalties: Failures to file can be considered tax evasion and fraud. The criminal statute of limitations is six years. Plus, the statute of limitations never expires on civil tax fraud.
- FBAR Penalties can be worse: The penalty for failing to file an FBAR is $10,000 for each non-willful failure to timely file. If willful, the penalty is the greater of $100,000 or 50 percent of the highest amount in the account for each violation. Each year you didn’t file is a separate violation.
- You can go to Jail: Tax evasion can carry a prison term of up to five years and a fine of up to $250,000. Filing a false return can mean up to three years in prison and a fine of up to $250,000. Failing to file a tax return can mean a one year prison term and a fine of up to $100,000. Failing to file FBARs can also be criminal with monetary penalties up to $500,000 and prison for up to ten years.
- Voluntary Disclosure is still an option: If you admit your failures to the IRS and say you want to make it right, and make a “voluntary disclosure”, you will pay back taxes and penalties but not be prosecuted.
- Quiet Disclosures can be risky: A “quiet” disclosure is a correction of past tax returns and FBARs without entering an IRS partial amnesty program. IRS warns against it.
- Going forward compliance is risky: Can you start filing complete tax returns and FBARs prospectively, but not try to fix the past? Maybe, but the risk is that your past non-compliance will be noticed and it may then be too late to make a voluntary disclosure.
- Disclosure is key: You can have money and investments anywhere in the world as long as you disclose timely your foreign accounts. When in doubt, timely disclose.
Don’t be a victim of your own making. Consult with your tax specialist.
By Stanley Foodman for The Yucatan Time, posted article can be found at: http://www.theyucatantimes.com/2016/06/10-rules-for-stress-free-foreign-bank-accounts/
Article can also be found at: http://www.caribbeannewsnow.com/topstory-Compliance-Matters%3A-Rules-for-stress-free-foreign-accounts-30762.html