There are an estimated 2.8 million Indians residing in the United States. That means that roughly one out of every one hundred people in the country are from India. Many of those folks are considered “NRI’s”, Non Resident Indians.
In our experience many foreign born Americans, dual nationals and green card holders keep financial accounts outside the United States. Some send money home to family and some are here on work visa and ultimately plan on returning “home.”
Opening or maintaining a foreign account is totally legal if the account is properly reported. Unfortunately, many NRI’s fail to report their Indian accounts on their U.S. tax returns and fail to file FBAR forms. (Offshore bank and brokerage accounts are reported on a Report of Foreign Bank and Financial Accounts or “FBAR.”)
We often speak with Indians living and working here but few are willing to comply with the foreign reporting requirements. Much of the fault for that lies with the government. Both the IRS’ National Taxpayer Advocate and the Government Accountability Office have said the IRS does a poor job educating folks on their offshore reporting obligations.
The government is not completely to blame, however.
Even after we explain the laws and the huge penalties for noncompliance, many folks (including NRI’s) still don’t comply. Over the last several years we have compiled a list of the reasons typically given:
1. The IRS will never catch me.
Wrong! Although the IRS obviously can’t catch everyone, they have proven very adept at finding and prosecuting folks with unreported Indian accounts. Already there have been several high profile criminal prosecutions of Indian Americans. Willful failure to file an FBAR or improperly checking the “no” box on Schedule B of the income tax form that asks about the existence of offshore accounts is a felony.
Our intent is not to scare folks. Most people who get caught don’t go to jail but they are assessed huge civil penalties. Those penalties are typically up to the greater of $100,000 per each unreported account or 50% of the highest historic account balance.
The chances of getting caught are high and the penalties for noncompliance are huge.
2. India won’t cooperate with the IRS.
Too late, they are cooperating. Although the United States and India have yet to sign a formal treaty, both nations say they are cooperating and effective July 1st, 2014, the Foreign Account Tax Compliance Act (FATCA) will require Indian banks to turn over information or risk sanctions.
3. I will simply close my offshore account and transfer my assets to the United States.
Once again, if you are reading this post, it is too late. The Justice Department has been asking many banks to perform a retroactive review of their accounts and identify those who closed accounts in anticipation of the new law. If the IRS thinks you closed your account and moved your money to avoid FATCA, the possibility of criminal prosecution rises dramatically.
4. I am no longer an Indian citizen / I no longer file tax returns in India.
Those facts are irrelevant. There are many NRI’s that have become U.S. citizens. Many still send money to families who remained in India.
FATCA requires banks to determine account holders with ties to the United States. Where one files tax returns and whether one is an Indian citizen is not relevant. If you have a tax filing requirement here and an account offshore, FATCA applies.
5. I didn’t know about the law.
Unfortunately, you are not alone but ignorance is not an excuse under the tax code. There are many attractive options available to help NRI’s and others with unfiled FBARs to come into compliance and avoid harsh penalties. In many instances, all penalties can be avoided. Once caught, however, many of these options disappear.
6. I will wait until I get caught before filing.
As noted above, many amnesty programs are off the table if the IRS finds you first. Even if the IRS has not contacted you, you are ineligible for amnesty if the IRS simply gets your name from a foreign bank. In other words, once caught or identified, it is too late.
For most NRI’s, it is not a question of if they will be caught. The better question is when. With so many amnesty and other compliance options available, there really is no good reason to wait. If you have an unreported account, consider speaking with an experienced accountant, FBAR lawyer or expat tax service. Owe several years of back FBARs? We suggest contacting an attorney first.
Whatever you do, don’t avoid the problem. The risks and penalties are simply too high.
Need more information? Call us for a no fee, confidential consultation. Contact attorney Bethany Canfield or by telephone at (414) 223-0464. The author Brian Mahany can also be reached at (Need help with translation, attorney Navdeep Singh may be able to help.)