by Brian Mahany
Having a bank or brokerage account in a foreign country is not illegal. There are dozens of reasons to keep assets offshore and most are completely legitimate. Listen to politicians and the media, however, and a different picture emerges. Owners of foreign accounts have been demonized. Politicians portray them as criminals. In fact, the public often associates offshore accounts with “fat cat” businessmen hiding money in Swiss bank accounts in order to evade taxes.
Although some Americans do use Swiss accounts to cover up their crimes, most do not. As we stated above, opening a Swiss account is completely legal. In fact, there are often great business reasons to do so.
Many of our clients were born outside the United States. Some send money “home” to their families in far away places. Some send money to take care of ailing parents in Israel, Greece, India and Mexico. Some of our clients are Americans who retired overseas. Quite naturally, they open a bank account near their new home.
We are a mobile society and it isn ‘t unusual for business owners to have workers, factories or stores in foreign lands. All necessitate foreign accounts.
Sometimes, folks just worry about the safety of the American banking system and want to diversify their holdings. Although we commonly talk about some of our banks being “too big to fail,” 51 American banks failed last year. Add to that number the many brokerage firms also going out of business and it is hard to blame people for seeking to diversify.
A few criminals sometimes hide their ill-gotten gains offshore but that doesn’t make all holders of offshore accounts criminals. Far more criminals keep their stolen assets in American banks. Some keep their money buried in the back yard.
Governments around the world are strapped for cash. That includes the United States. The penalties for having an unreported account are staggering. If the IRS determines the failure to report your account was “non-willful,” the penalty is a mere $10,000 per account per year. If you can’t prove your innocence, however, the penalties jump to a whopping $100,000 or 50% of the highest balance per account per year.
Offshore financial accounts must be reported annually on a Report of Foreign Bank and Financial Accounts (also known as an FBAR or by its form number, TD F 90-22.1). Remember that the FBAR requirements include more than just traditional bank accounts. Certificates of deposit, brokerage accounts, offshore hedge funds and even some insurance products with an investment component must also be reported.
Banking officials estimate over 1 million Americans have unreported offshore accounts. Why? We believe that most simply do not understand the law. Unfortunately, for most of these folks the new FATCA law will soon be the harbinger of bad news. Beginning next year, foreign financial institutions will begin reporting accounts with ties to the United States.
Nine days ago we reported on one of the largest data breaches in history. The offshore account history of upwards of 100,000 people was stolen and is now in the possession of the International Consortium of Investigative Journalists. Ever since that data breach came to light, taxing officials around the world have been clamoring to get their hands on that data. In our opinion, they should be working together to prosecute those responsible for the invasion of privacy.
One newspaper reported that of the suspected 100,000 people whose records were stolen, 4000 of those people are Americans. According to that paper, 30 of those people are named in lawsuits or indictments as suspected fraudsters or money launderers. That is less than 1%. Should the other 99% have their names published and financial privacy violated? We think not.
Whether or not you agree with the offshore reporting laws and the “inquisition” mindset that pervades Capitol Hill these days, sooner or later the government will figure out who has foreign accounts. If a group of reporters can do it, so can the IRS which has tremendous tools and powers at its disposal.
Time is running out to come into compliance and avoid the full weight of penalties. At this point, merely filing one’s missing FBARs or amending old returns won’t work. If you have foreign bank or other financial accounts, you need to consult with a tax attorney immediately.
[Ed Note: See important update on this story here.]
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Whether you hire or us or not, we will gladly discuss your options at no cost and without obligation.
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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