Do you have a foreign bank account that may have international tax implications? If so, it is absolutely critical that you fully understand that US tax law states all US persons (that is citizens, resident aliens and anyone who meets the substantial presence test) file an FBAR to make the IRS aware of any foreign bank accounts that you have interest in or authority over.

While the FBAR is simply an information return, meaning that no taxes will be owed as a direct result of filing the FBAR, you must also file tax returns to fully account for any foreign income and pay the associated taxes.

With the US DOJ taking aggressive action against foreign entities that may be involved with US citizens hiding income in foreign bank accounts, failure to report your foreign bank accounts is like strapping a ticking time bomb to your money. When the IRS finds out about it, the penalties could easily cost you in excess of 100% of your unreported income and assets. To find out how to protect yourself, keep reading.

Offshore Banking Does Not Guarantee Secrecy

In previous years, U.S. taxpayers could rely on offshore bank accounts to offer secrecy and protection from the IRS. Recently, however, the IRS has cracked down on taxpayers with foreign bank accounts. The IRS has launched investigations and lawsuits against banking institutions in foreign countries in order to erode the traditional secrecy usually associated with foreign banking. Congress has recently passed legislation to increase criminal penalties for U.S. taxpayers with foreign bank accounts.

The IRS Cracks Down on Banks in Foreign Countries

The IRS has the ability to find hidden Swiss bank accounts even if a taxpayer has not disclosed them. In recent years, the IRS has entered into agreements with Switzerland ensuring the U.S. direct and unimpeded access to financial information in Swiss banks “in which U.S. taxpayers have a direct or indirect interest.” Under this agreement, the Swiss banks will report directly to the IRS, making it more difficult than ever for U.S. taxpayers to hide assets from the IRS.

In addition, the IRS has recently focused attention on Israeli banks to investigate whether they have helped U.S. citizens evade paying taxes. Increased activism on the part of the IRS has even led to U.S. legal action against a number of international banks, including UBS, Credit Suisse, HSBC, and Wegelin. In this environment, taxpayers with foreign accounts need to be particularly careful and aware of the potential hostility of the IRS toward foreign banking.

Should I Voluntarily Disclose My Foreign Bank Account?

U.S. taxpayers with undisclosed foreign assets or bank accounts have reason to be concerned. Under the IRS voluntary disclosure program, a taxpayer with noncompliant foreign bank accounts and assets has the potential to pre-emptively disclose the bank account to the IRS, pay any fines and penalties, and escape criminal prosecution. In cases where the IRS can show that the failure to report the existence of the foreign account was “willful” and rising to the level of criminal behavior, the voluntary disclosure program provides a reasonable option.

Sentencing in Offshore Account Cases

Failing to report an offshore account can result in serious penalties and fines, and potentially even criminal charges. If a taxpayer willfully fails to file the required forms, that is a felony punishable by a fine of $250,000 or five years in jail or both. In addition to criminal charges, the willful failure to file appropriate forms can result in civil penalties equal to the greater of $100,000 or 50 percent of the account balance per year that the account went unreported. Civil penalties can be imposed on an annual basis and may actually end up greater than the amount in the account. Even the negligent failure to file the correct forms can result in a civil penalty of $10,000 per violation. The IRS takes the existence of foreign accounts very seriously and will be very aggressive to extract maximum fines and penalties from taxpayers it suspects of noncompliance.

How A Tax Attorney Can Help

If you have a foreign account which you have not disclosed to the IRS, your pre-emptive voluntary disclosure should be handled by an experienced tax attorney. The IRS will try to extract the maximum amount of penalties and fines from taxpayers who failed to disclose foreign assets, but an experienced tax attorney can negotiate with the IRS to minimize those amounts. A tax attorney experienced in offshore compliance will ensure that your accounts are compliant moving forward, something that the IRS will want you to demonstrate. Finally, a tax lawyer experienced in dealing with the IRS can help you avoid criminal prosecution.

The Tax Lawyer - William D Hartsock has been working with various IRS voluntary disclosure programs since the mid 1980's and is one of the preeminent authorities within this special niche of tax law. Call (858)481-4844 today for a free consultation with the full benefit of attorney client privilege so that you can safely learn more about your situation and options.


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