For Taxpayers that maintain foreign or offshore banks accounts it is imperative that they be aware of their reporting responsibilities to the Internal Revenue Service. Fortunately, most Taxpayers with offshore bank accounts have knowledge of their reporting obligations. However, for those who fail to properly document their foreign bank holdings, the stakes have never been higher and the potential for liabilities can be staggering.
The laws relevant to the reporting of offshore financial accounts took effect over four decades ago. It is only recently that the Internal Revenue Service has taken steps to publicly express its concerns regarding tax compliance in relation to foreign bank accounts. Many Taxpayers who once relied on the so-called secrecy of the Swiss bank account have found themselves the targets of criminal prosecutions. Prominent Swiss Banks such as UBS, HSBC and Credit Suisse have agreed to turn over the names of account holders to the Internal Revenue Service. Banks in other countries have also agreed to disclose client information. The Internal Revenue Service’s ever increasing ability to obtain secret information from foreign jurisdictions indicates that we should expect to see more investigations and prosecutions.
First and foremost, worldwide income must be reported on the personal income tax return. On Schedule B, “yes” must be checked if the Taxpayer has an interest in an offshore account. In addition to the filing of the personal income tax return, any Taxpayer with a foreign bank account must file the Report of Foreign Bank and Financial Accounts commonly known as the FBAR. The FBAR is not a tax return, but an annual report stating that the Taxpayer filing has a financial interest in, or signatory authority over, financial accounts in a foreign country with an aggregate value exceeding $10,000 at any time during the tax year. The penalties for failing to file the FBAR are severe. The statutory civil penalties might be $10,000 per year for a non-willful failure to file. However, if found guilty of willfully not filing an FBAR, the penalty could be equivalent to the greater of $100,000 or half the value of the balance in an unreported foreign account, per year, for up to six years, whichever is greater. Additionally, a person convicted of tax evasion can face a prison term of up to five years and fine of up to $250,000.
When faced with an offshore account tax problem, seasoned tax counsel is a must. Through the Internal Revenue Service programs such as the Offshore Voluntary Disclosure Program and the Streamlined Domestic Offshore Procedures it is possible to substantially decrease civil liabilities and eliminate criminal sanction. At Brandywine Tax Resolution we have a comprehensive understanding of the rapidly changing laws and regulations that govern offshore accounts. We are focused on bringing your foreign bank accounts into compliance with the law while minimizing negative consequences. If you have a financial account which you have not previously disclosed, do not hesitate to contact Brandywine Tax Resolution for a consultation.