April 2021 Foodman website and JD Supra

IRS is interested in U.S. Taxpayer financial accounts everywhere in the world.  If the IRS learns that a Taxpayer has undisclosed reportable accounts or income before a US Taxpayer reports them, the Taxpayer can face serious consequences including criminal prosecution. Taxpayers under the impression that closing a foreign bank account today will solve a lack of disclosure problem could make things worse under the current regulatory environment.

To have stress free foreign accounts:

  • Report your worldwide income on your U.S. income tax return.
  • If you have an interest in a reportable foreign bank or financial account, you must report it.     
  • You must file your FBAR. All U.S. persons with reportable foreign bank accounts with an aggregate balance exceeding $10,000 at any time during the year must file an FBAR.    
  • You must also report your foreign financial assets.

The Consequences of not Timely and Accurately Reporting

  • Financial penalties for failures to file and accurately disclose can be imposed under both criminal and civil regulations.
    • The penalty for failing to file a required FBAR is $10,000 for each non-willful failure to timely file and accurately disclose. If willful the failure to file and accurately disclose is judged to be willful, the penalty is the greater of $100,000 or 50 percent of the highest amount in the accounts for each violation. Each year not file is a separate violation.
  • You could go to Jail. For example, 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.

Available Compliance Remedies

  • 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 and almost certainly avoid criminal prosecution.
  • 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 the key. You can have money and investments anywhere in the world if you disclose timely your reportable foreign accounts and financial assets. When in doubt, timely disclose.

Who is assisting you with your Foreign Bank Accounts?   Consult with a qualified tax specialist.  ©