Do I Close or Report Noncompliant Offshore Bank Accounts to IRS?
Do I Report or Close my Offshore Bank Accounts to IRS: For many US taxpayers with foreign accounts, they do not become aware that they are out of compliance for not reporting their foreign bank accounts to the IRS until several years has passed. And as a result of all the online fear-mongering, many account holders become unnecessarily terrified about what will occur if the Internal Revenue Service learns that they have not reported their foreign bank and financial accounts in prior years. Most of the time and in most circumstances — it is not going to be a big issue.
Let’s briefly look at the difference between late reporting foreign bank accounts vs closing previously undisclosed offshore accounts that are currently noncompliant.
What if you Just Close the Offshore Account?
While closing the offshore bank account might seem like the path of least resistance — it really isn’t. In fact, it can be more of a headache than you might believe it to be at the outset.
For example, if a US person has foreign accounts that were never reported to the IRS and the US person account holder just goes and closes the accounts — it puts them in a serious predicament.
Because the Taxpayer has not reported the foreign bank and financial accounts for several prior years. In accordance with FATCA, more than 110 countries and 300,000 Foreign Financial Institutions actively report account holder information to the US Government.
In addition, the US government has several years to audit the Taxpayer regarding prior tax year noncompliance. Moreover, if the US government believes the taxpayer acted fraudulently, there is literally no statue of limitations and the time for the IRS to come after you by audit, examination or investigation does not expire.
What if you Keep the Foreign Account Open?
If you want to keep the account open, it is just a matter of getting into compliance using one of the offshore amnesty programs. While this is usually a very safe option, some Taxpayers prefer to try their luck and just start filing forward and hope the IRS never learns about their prior years’ noncompliance.
This is considered a quiet disclosure and is illegal.
In reality, many taxpayers have presumably gone this route and have not gotten caught. The IRS staff is overworked and underpaid — and they simply do not have the resources to go after everyone.
But, for the unlucky taxpayers who do get audited or examined, it may the result in significant fines and penalties and even a special agent or criminal investigation.
Getting into Offshore Compliance can Be (Relatively) Painless
In conclusion, when a Taxpayer wants to safely get into compliance for unreported foreign bank and financial accounts they have several options available to them. The IRS has developed multiple offshore tax and reporting amnesty programs that are used to report prior year unreported accounts. While some taxpayers may be able to sneak through by filing a quiet disclosure or simply closing their accounts — if they do get caught, it may result in significant fines and penalties.
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