by Brian Mahany
One month ago today we posted an article about the crackdown on unreported Korean bank accounts. IRS and Korean National Tax Service (NTS) officials have been cooperating – and prosecuting – taxpayers with unreported foreign accounts. Our post evidently struck a nerve as we have now learned of several new investigations into unreported foreign accounts.
U.S. taxpayers, which include Korean nationals holding a green card and dual nationals, must annually report all foreign financial holdings. Foreign bank and brokerage accounts are reported each year on a Report of Foreign Bank and Financial Accounts or “FBAR.” Owning the account is completely legal if properly reported.
Evidently, many Korean nationals in Korea are hiding money in Swiss accounts and many Korean – Americans are failing to properly report their offshore bank accounts. Since we last wrote our story, the NTS has disclosed that it has recovered $432 million USD in taxes from previously unreported foreign accounts, many of them Swiss. That sum was recovered just in the first 6 months of this year.
IRS and U.S. Justice Department prosecutors have criminally charged several Korean Americans for failing to report their foreign holdings.
With both countries now cooperating and the new Foreign Account Tax Compliance Act (FATCA) about to take effect several months from now, the window of opportunity to come into compliance is closing quickly. Beginning next year, foreign banks must disclose the identities of account holders with ties to the United States. Once that happens, holders of unreported foreign accounts may not be eligible for the current IRS amnesty programs.
Korean Americans and Koreans here on green card status often hold their money in a Korean bank with offices in the United States. If your account is at a U.S. branch of BBCN or Hanmi, for example, you probably have no worries. If your monies are in a Swiss account or in an account located in Korea, however, you must file FBARs annually and pay tax on any income or dividends. Accounts in non-U.S. branches of Hana, Kookmin or Woori banks should be declared.
The penalty for an unreported foreign account can include prison and 50% per year of the account’s high balance for each year the account was not properly declared. With the IRS going back 8 years, that means your entire account could quickly and completely be wiped out by these penalties.
Criminal prosecution and huge penalties are generally reserved for those who acted willfully. If you deliberately hid money, consider the current amnesty program as the only way of avoiding prosecution.
The IRS is offering an amnesty plan called the Offshore Voluntary Disclosure Program (sometimes called “OVDI” or “OVDP”). That program allows taxpayers with unreported foreign accounts to come forward and avoid audit, criminal prosecution and most penalties. Participants must pay a one time 27.5% penalty.
There are special amnesty programs for taxpayers with accounts worth less than $75,000 USD, those who inherited an offshore account and those not residing in the United States. Of course, there is much “fine print” with all of these alternatives.
Many of our clients simply had no idea that their offshore account had to be declared. For these folks, a traditional disclosure may be the best route. Generally penalties are greatly reduced or even waived. There are no guarantees, however.
The offshore reporting rules are very complex. Our advice is to have your returns prepared by an accountant well versed in foreign reporting requirements. If you are not currently in compliance, however, find a good tax lawyer to help navigate you through the several options and alternatives. Do not delay, however. If the IRS finds you first or if your bank discloses your name under the new FATCA law, all bets are off. The IRS amnesty programs all operate on a first contact basis meaning you must come forward first.
The tax lawyers at Mahany & Ertl have helped many foreign born Americans and Americans with foreign tax reporting problems. Offshore accounts, unreported Swiss accounts, FBAR compliance, foreign gift tax returns, OVDP and foreign corporations, we can help. In most instances, our services are can be offered at an affordable flat fee basis.
For a no obligation review of your concern, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are kept in strict confidence and protected by the attorney – client privilege.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. Services available anywhere in the United States and worldwide.