by Brian Mahany
We have long warned about the dangers of having an unreported foreign account. The biggest danger, of course is the IRS with its huge civil and criminal penalties. Miss just one FBAR filing (Report of Foreign Bank and Financial Account) and you could go to jail (if the failure was willful) or face civil penalties of $100,000 or 50% of the highest account balance. If that isn’t bad enough, a brand new danger surfaced this week. One that caught even some experts off guard.
Earlier this week, the tiny nation of Cyprus proposed to levy a “one time” tax on wealth. Not income but wealth. The tax would be levied on bank accounts. After widespread opposition, the government agreed to only tax accounts with more than $26,000 USD. Accounts over $130,000 USD would be levied with one time 9.9% tax. (The tax would be lower for accounts between $26,000 and $130,000.)
Just think how you would feel if you checked your account on line and found thousands of dollars missing. And does anyone believe that a “one time” tax is ever just one time?
If you think the problem is simply one for the unfortunate Cypriots, you are wrong. Many Russians maintain accounts in Cyprus. A fair amount of Americans do too.
Many people worry about whether they will get caught with their unreported accounts. The question never asked is whether your funds are safe in certain overseas countries. When governments go broke and need cash, big banks accounts become attractive.
There are tens of millions of Americans who are dual nationals, foreign born or living overseas. Many of offshore accounts. Millions of other Americans simply maintain overseas bank accounts. As the ill conceived Cyprus plan demonstrates, just having money “safe” from the IRS doesn’t make it “safe” from other taxing authorities.
There is an amnesty program available through the IRS designed to help people with unreported accounts come into compliance. The current Offshore Voluntary Disclosure Program (“OVDI” or “OVDP” for short) avoids audit and criminal prosecution but does carry a fairly steep 27% one time penalty. Other programs are also available and may be more advantageous for those with small accounts or who simply didn’t know of the FBAR filing requirements.
If you have an offshore account, make sure your money is safe and make sure the account is properly reported. Have an unreported account? Call us and we will give you an honest assessment of your options. Most of our foreign reporting work can be handled on a flat fee basis and we will defend you for free if the IRS disagrees with our position.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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