By Veronica Pamoukaghlian, Senior Technical Writer. Updated January 2019 by Brian Mahany
Today, not reporting foreign bank accounts to the IRS can lead to unthinkable penalties. If you who have kept an overseas account at a non-US bank without disclosing this information to the IRS, a mere $10,000 account might lead to penalties of hundreds of thousands of dollars. The longer this situation has been going on, the more astronomical penalties may be.
However, if you choose to voluntarily disclose information about your overseas accounts, you could be subject to significantly lesser penalties.
While US laws have been designed to discourage the hiding of large fortunes offshore, many people still do so. In fact, the IRS thinks that there are tens of thousands of unreported accounts holding billions of dollars.
Whether the account was deliberately hidden in an effort to commit tax evasion or was the result of an honest mistake goes to how much the penalties may be abated.
In the past, it was hard for the US to track overseas accounts, primarily due to bank secrecy practices. But thanks to the Foreign Account Tax Compliance Act (FATCA) the US has made deals requiring over 100 countries to report information about accounts held by US taxpayers. This includes numerous Swiss banks and financial institutions based out of “fiscal paradises;” a kind of paradise the new legislation is steadily eradicating.
A tax evasion report by the US Government Accountability Office revealed that by December 2012 the IRS’s offshore programs had resulted in 39,000 disclosures leading to payment of $5.5 billion in taxes and penalties, with 6% of penalty amounts over $1 million.
Because the IRS is constantly striking deals with new financial institutions, it is getting harder to hide money.
Harder but not impossible. Now that many foreign banks are cooperating with the IRS, tax cheats have devised a new scheme to hide their wealth from Uncle Sam, the use of shell companies and nominee entities.
Say for example that I want to hide my money from the IRS. If I open a bank account called “Brian Mahany” at Credit Suisse, there is a record of the account. Sooner or later the IRS will find it.
Now, so-called trust companies, wealth managers and even some offshore accountants and lawyers are helping Americans open foreign companies. Let’s say I want to hide a million dollars in a Swiss bank.
A clever lawyer could create a Panama corporation that owns a Malaysian LLC that owns a company simply called XYZ Corporation in Malta. The company opens the Swiss account. How will the IRS ever find out?
In many cases, the answer is whistleblowers. In fact, the GAO says that between 2007 and 2018, whistleblowers helped the IRS collect $3.6 billion in unreported taxes.
Today if the US finds a hidden accounts before reported by the taxpayer, penalties will be significantly higher. Deliberately use shell companies or nominee entities and criminal charges and maximum penalties of the greater of $100,000 per account or 50% of the account balance per year become possible.
We warn everyone to promptly report offshore financial accounts. Despite our warnings, however, tens of thousands won’t do so.
FBAR Filing Requirements
US taxpayers and companies with a greater than 50% direct or indirect financial interest or signature authority over foreign financial accounts are required to file the FBAR if the aggregate value of the accounts at any time in the calendar exceeds $10,000.
The annual FBAR report must be filed electronically on or before June 30th. Usually FBAR deadlines are not extended even if you have an extension for the rest of your taxes. And remember, simply reported your foreign financial accounts on Schedule B of your federal income tax return isn’t enough, you may still be required to file an FBAR.
FBARs must be filed online by the deadline. It is common knowledge that many taxpayers only disclose information about foreign accounts after financial institutions reach a resolution to provide information to the IRS. By that time, penalties can almost double.
The only way to minimize penalties for foreign account activities is to file an FBAR following all the IRS´s requirements. If you have never filed an FBAR, you may also need to report activities from previous years.
Filing an FBAR without a clear strategy, especially when filing for several years into the past, can be a mistake. It is important to seek expert advice to decide what kind of compliance program is best for you, and to carefully plan your offshore account reporting.
If you want to find out about the legal status of your foreign accounts or are unsure whether filing an FBAR at this time might be the right move, we can refer you to a great offshore accounting firm with reasonable rates. Unless you face criminal exposure, you probably don’t need us.
FBAR Whistleblower Awards
Okay, we gave our warnings above. As said before, many won’t listen. And that is where you come in.
Under recently amended guidelines (February 2018), the IRS can pay whistleblowers that provide information regarding taxpayers with non filed FBAR reports or other offshore tax violations.
Depending on the income of the taxpayer and he size of the unreported tax and penalties debt (including FBAR penalties), the IRS can award between 10% and 30% of whatever is collected from wrongdoers. As noted on our FBAR whistleblower page, the IRS in 2018 issued a $13.6 million award to a taxpayer that had tried to avoid reporting his or her offshore accounts.
The IRS collected $52 million, the whistleblower was paid $13.6 million. And in 2004, whistleblower Bradley Birkenfeld was paid $104 million for blowing the whistle on UBS. As a former UBS director, he provided evidence that the bank was helping Americans illegally hide money.
Want more information? visit our more detailed offshore tax evasion information page as well as our FBAR whistleblower page. Both have important information. Ready to see if you qualify? Just give us a call. All inquiries are kept strictly confidential and subject to the attorney – client privilege.
Securing the services of an attorney experienced with foreign account whistleblowing is crucial if you really want a shot at collecting an award. The IRS takes less than 1% of the tips filed meaning you need experienced former IRS and state tax agents and prosecutors on your team. We have helped numerous whistleblowers across the United States collect over $100 million in rewards.