What Can Happen If You Don’t Report Offshore Bank Accounts?

On: July 3, 2020

If you have a bank account, mutual fund, or any other financial asset outside the U.S, you are required to report it to the IRS if it exceeds certain thresholds. This can be done by filing FBAR (Foreign Bank Account Reporting). As a U.S resident (All personnel holding green cards even if not physically present in the United States), you have to pay income tax on your entire income worldwide, whether it’s from inside the U.S or in any other foreign country, which includes income made on investments. It is very important to report your income from foreign assets if you are required to.

Who Must File FBAR (Foreign Bank Account Reporting)?

All U.S residents must file FBAR when they have authority or interest over a foreign account. However, you will only need to file if the value of foreign account or accounts combined exceed $10,000 at any time of the calendar year, or when a transaction is made through that account. You need to report your foreign bank accounts to IRS even if they do not produce taxable income.

FATCA (Foreign Accountant Tax Compliance Act)

FATCA requires foreign financial institutions and entities to share information on accounts held by U.S. residents. This information includes your name, account numbers with balances, addresses, and identification numbers. So if you think that the IRS won’t find out about you, you’re wrong.

What Consequences Can There Be If You Don’t Report Your Offshore Accounts?

If you don’t disclose your offshore accounts, you might get caught. The IRS may also impose penalties or even freeze your account. U.S residents who were required to but did not declare their offshore accounts may face severe penalties or even criminal charges unless there was a valid reason. If the violation was non-willful, then the IRS imposes a fine of $10,000 per violation. Non-willful abuse means it was due to negligence, lack of knowledge, or a mistake. Whereas willful conduct means intentionally violating the law.  For willful conduct, the civil penalty is severed and may value between 50% of the balance in your offshore account at the time of the violation or up to $250k. However, in certain cases, the IRS may reduce the penalty.

What Options Do You Have If You Have Undeclared Offshore Accounts?

If you have undisclosed offshore accounts, do not worry. You have two options available.

1. Compliance Procedures

If you believe that your failure to file your FBAR is un-willful and you are not being examined by the IRS, then you may file your delinquent forms under the Streamlined Offshore Procedures. Under which you have to:

• file tax returns for the last three years
• file FBAR for previous six years
• submit a certificate of non-willful

2. OVDP (Offshore Voluntary Disclosure Program)

If your failure to declare your offshore accounts is willful and you want to avoid criminal charges, you may qualify for the Offshore Voluntary Disclosure Program. If your offshore accounts have a large amount of money, then this program may be for you. Under OVDP, you have to file returns for a period of six-year. The total penalty on your undeclared accounts is $100K or 50% of the highest account balance, whichever is greater. The IRS examiner, however, may increase or decrease the penalty, but it cannot exceed 100% of the highest aggregate balance of your account. You can only opt for this option if you are not being examined by the IRS.

Professional Advice

If you have any undeclared foreign bank account or asset that was required to be disclosed, it is recommended that you seek professional help. Get your situation analyzed and always make sure to call Leading Tax Group and don’t attempt to do it yourself.