The final day of reckoning is just a week away. For millions of Americans, October 15th is the day their 2012 tax return is due. We personally know that many taxpayers with offshore accounts are still sitting on the fence – should they report or not.
The choice is really simple. Years ago, the IRS and Treasury Department often ignored unreported offshore accounts. But those days are over. Those who remain sitting on the fence may soon find themselves sitting in a jail cell.
U.S. taxpayers with more than $10,000 in offshore financial assets last year are required to report those assets. Reporting is done on a Report of Foreign Bank and Financial Accounts (FBAR) and also on one’s individual income tax return. Schedule B of the 1040 return asks if “At any time during 2012, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? ” (Note there is no $10,000 minimum threshold.)
For certain taxpayers, their foreign accounts must also be reported on a FATCA form 8938. FATCA is the acronym for the Foreign Account Tax Compliance Act.
There are penalties for failure to complete any of the offshore account reporting forms if required. The penalties for a missed FBAR are the most severe, however. Those penalties include possible prison and up to the greater of $100,000 or 50% of the highest balance in the account for each year the account was unreported.
FBAR forms were due on June 30th. There is no extension for FBARs. If you have not filed an FBAR but plan on reporting your account on Schedule B over the next few days, contact an experienced FBAR attorney or tax lawyer that concentrates in foreign tax reporting issues.
Why is important to contact a lawyer?
A good CPA with offshore account knowledge can handle the filing needs of all but a few taxpayers. BUT reporting your account on Schedule B without a corresponding FBAR is an immediate red flag to the IRS. By answering the check the box questions on Schedule B, you alert the IRS that you either own or have signature authority over a foreign account. With penalties so high, its important to have a strategy. Missing FBARs require a good IRS lawyer.
Taxpayers with missing FBARs have several options. Some may benefit significantly from the IRS’ current offshore account tax amnesty (called the Offshore Voluntary Disclosure Program). Some Americans who are living overseas and meet the criteria for being designated as “low risk” may benefit from the IRS streamlined compliance procedure. Still others may do best with a traditional voluntary disclosure. The latter offers no guarantees but can result in very low or waived penalties if the IRS believes your failure to comply was non-willful.
The worst option, of course, is deciding to do nothing and procrastinate for another year. Beginning next year, Congress’ FATCA law requires offshore banks to find and report those accounts with ties to the United States. If the IRS finds you first, all bets are off and amnesty is no longer an option.
The rules regarding offshore accounts and FBAR filings are quite complex. Given the extremely high penalties that the IRS routinely assesses in these cases, dealing with the problem now is the best option.
For more information and a no cost review of your situation, contact us today. Our team of IRS lawyers has helped taxpayers across the world with FATCA and FBAR problems. We usually offer flat fees for our services. Because we handle many of these cases, we can offer our services for less cost than many other tax lawyers.
Post by Brian Mahany, Esq.