Tax Law Los Angeles
Despite the fact that the IRS may be mellowing, somewhat, their stance on offshore account holders, in light of the revisions to the Offshore Voluntary Disclosure Program back in 2012, they’re actually paying more attention than ever to people with overseas bank accounts. This is in large part due to the fact that there are over 7 million American citizens living abroad, presently. That’s a large chunk of change, and you can rest assured, the IRS will get their money.
Every American citizen with over $10,000 is required to file a Foreign Bank and Financial Account Report, or FBAR, with VERY strict penalties for those that fail to comply.
Here’s some things to keep in mind, when dealing with FBARs.
The deadline for FBAR to be filed in June 30. Paper filings are no longer allowed, so must be filed online. You can self- file, or use a expat tax professional to file on your behalf.
If you choose a preparer to assist you, you must also fill out FinCEN Form 114A to grant them permission to file for you. There are no extensions for FBARs, so be on time!
If an American citizen has held more than $10,000 in a foreign bank account in the past year, they are expected to file a FBAR. This also includes green card holders, and people expected to file a 1040 form. Certain other entities such as real estate investment trusts (REITS) and other entities organized under US law or located here may also have to comply. Whether you have one account with $10,000 or 5 accounts with $2000, if your foreign holdings in the aggregate exceed the threshold, you must file an FBAR. You must file, even if your accounts only exceeded the $10,000 limit for a day or two.
Yes! FBAR and FATCA may be affiliated with one another, but they are different, each with their own rules.
Bad things! Very bad things! Willfully not filing a FBAR is a felony, which can result in up to five years in prison. In addition, willful failure to file FBAR can result in fines of $100,000 or half of the account in question. For non-willful failure to file, each account can be fined up to $10,000 per account, per year.
Don’t stay silent! Filing your past FBARs can be akin to admitting guilt, but with the IRS paying more attention to offshore accounts than ever before, it would be economic suicide NOT to do something! The IRS is running a tax amnesty program, Offshore Voluntary Disclosure Program, (OVDP) for those with missing FBARs and unreported foreign accounts, that can help diminish the consequences.
Some folks believe they can get away with filing their back FBARs without the IRS noticing. If successful, the taxpayer can avoid paying the heavy penalties and taxes for failing to report the account in previous years.
There are high chances, however, that one will have to pay at least the penalty for reporting assets after the deadline. This method poses serious risks as there is a high probability of some sort of penalty being assessed for missing the reporting deadline.
Prior to 2008, this method of disclosure was quite successful as taxpayers managed to avoid penalties when disclosing a foreign account, “silently” after the deadline. They did not enter in any of the voluntary disclosure programs introduced by the IRS. When they realized that keeping their foreign bank accounts hidden may result in severe legal action, they decided to complete all the documents and records without any proper notice. Their success is a hope and example for many taxpayers today.
Quiet disclosure is not as simple as it sounds. Although this method of disclosure may bring some advantages for the taxpayer, the risks associated could potentially outweigh the benefits one hoped for.
Quiet FBAR disclosures limits the compliance of a taxpayer’s compliance with the IRS. There are many verified alternatives, such as offshore voluntary disclosure programs,that encourage taxpayers to disclose their hidden assets before the IRS discovers them.
Even if the taxpayers remains successful with in their approach of silent disclosure,there are some risks with serious long-term consequences. One must not forget that it is important to be aware that the IRS is taking strict measures to ensure a fair taxation system. The severeness of the consequences imposed on guilty taxpayers and heavy penalties imposed, unfortunately encourage the taxpayers to continue with their tax concealment techniques.