Should You Report Undisclosed Foreign Accounts to IRS?
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Why Report Previously Undisclosed Foreign Accounts?
5 Reasons Why You Need to Report Foreign Accounts: When it comes to the different IRS compliance enforcement protocols, the reporting of foreign accounts (timely and accurately) is near the top of the priority list. Over the past 10+ years, the Internal Revenue Service has significantly increased enforcement of international reporting of foreign bank and financial account forms. Some requirements such as the FBAR (FinCEN Form 114) have been around for over 50 years — while FATCA (Foreign Account Tax Compliance Act and Form 8938) is a relatively new reporting requirement. Although there are many reasons why US Persons should consider reporting foreign accounts — here are five (5) important reasons why Taxpayers should consider reporting their foreign accounts and bring themselves into IRS offshore compliance:
Your Foreign Bank Reports to IRS
More than 110 foreign countries and many Foreign Financial Institutions across the globe have entered into FATCA agreements with the US to facilitate reciprocal financial account reporting. This means there is a higher likelihood that at some point in time, your Foreign Bank or other Financial Institution abroad will report your account and income-related information to the US government. If a Taxpayer is out of compliance — this may lead to an audit and subsequent offshore penalties.
FBAR Penalties Can Be Tough
As far as penalties go for non-compliant foreign account reporting, the FBAR penalties rank near the top of the list. While many courts have taken the Taxpayers’ side on matters involving limiting non-willful penalties — the Internal Revenue Service and US Government have been very successful with enforcing willful penalties — in which penalties are typically 50% of the maximum value of the account(s).
IRS Wins Often on Reckless Disregard
One of the most unfair aspects of the FBAR penalty scheme is that the US government does not need to prove that the Taxpayer was willful — or had any intent to avoid reporting their foreign accounts — in order to hold them liable for willful penalties. Rather, all the US Government is required to show is that Taxpayer acted with reckless disregard. And, Federal Courts across the nation have affirmed this lower threshold for the US government on the issue of civil willful penalties.
FATCA Form 8938 Fines are Bad Too
FATCA for US Person Taxpayers generally refers to the filing of Form 8938 (6038D), which is used to report Specified Foreign Financial Assets — including items such as accounts, life insurance policies, and foreign pension plans. In recent years, the Internal Revenue Service has significantly increased enforcement of the form 8938 penalty (after initially providing leeway) and the penalties can be substantial.
Report Foreign Accounts & Regain Your Peace of Mind
These days, the internet is littered with foreign account reporting fear-mongering. But, most of the time offshore disclosure (VDP, Streamlined, Delinquent Procedures) is a safe and effective process for getting into compliance. And, by safely getting into compliance — Taxpayers can regain their peace of mind — and rest easy again.
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