U.S. taxpayers who hold assets and funds in offshore accounts know the importance of reporting these funds to the IRS during tax season but occasionally, mistakes will be made or purposeful errors will come up along the way. These negligent errors may seem small, but left unreported, you could unknowingly be creating quite a mess of penalties and fines. We’ve heard too many stories of taxpayers owing hundreds of thousands of dollars in fines to the IRS, along with facing criminal charges for their failure to report, which is why the team at Evolution Tax and Legal is breaking down FBAR and how we can help you avoid penalties for your reporting mistakes. Read on to learn more and if you have further questions regarding how to protect yourself from FBAR penalties, speak with an FBAR lawyer.
What Is Foreign Bank Account Reporting?
Foreign Bank Account Reporting (FBAR) is an annual filing \requiring the reporting of money and assets held in foreign bank and financial accounts. This reporting is designed to limit tax evasion by U.S. citizens who are living and working abroad and U.S. citizens who hold money and assets in offshore bank accounts. Typically, it is necessary to report funds in foreign bank accounts but filers may also report foreign assets, such as stocks held by a foreign institution, assets held in a foreign branch of a U.S. financial institution, and life insurance or mutual funds held in a foreign bank.
Any U.S. citizen, resident, or green card holder who holds an aggregate of $10,000 or more worth of assets in a foreign institution at any given time throughout the year is required to file an FBAR. As a taxpayer, you are required to aggregate any foreign accounts which you have a direct interest in or signatory authority over throughout the year to determine if you are required to file an FBAR. The FBAR is required to limit tax evasion by U.S. citizens, by allowing the government to keep track of funds and assets of citizens living abroad or citizens holding money in offshore accounts.
FBAR Penalties
Willfully choosing not to file an FBAR can result in severe criminal and civil penalties. If you are determined to have failed to file an FBAR, you can face up to 10 years in prison and criminal penalties of up to $500,000. The civil penalty for failing to file an FBAR is a fine of up to $100,000, or 50% of the account balance at the time of the crime. A taxpayer can be charged with a civil penalty for failing to file an FBAR, whether they do so willingly or negligently.
What To Do if You Misreported Your Foreign Income?
There are various reasons why a U.S. taxpayer may have misreported foreign income, from the simple mistake of not attaching the proper form when filing your taxes, to failing to accurately track your foreign income to purposeful omission of foreign income, with the belief that this is in your best interest. At Evolution Tax and Legal, we’ve seen all these reasons, and more, and have helped ensure our clients come out the other side of their misreporting. There are voluntary options to rectify your misreporting of foreign income, which will help protect you from a criminal investigation and facing criminal charges. These options include:
IRS Voluntary Disclosure Program
The IRS Voluntary Disclosure Program is an option we offer our clients who are aware of their failure to properly report their foreign income but who have not yet been informed that their tax non-compliance is being investigated. The Voluntary Disclosure program allows taxpayers to cooperate with the IRS and come up with a solution to their failure to report, without having to be involved in a criminal investigation. This will help ensure that your non-compliance with tax standards is taken care of, without facing criminal charges. In order to begin the voluntary disclosure process, it is necessary to submit forms to the IRS to apply for the program. Evolution Tax and Legal can work with you to ensure this program is right for you, make sure the process is straightforward and you comply throughout, and any penalties or fines you may face are paid in full, within the proper time period.
Streamlined Voluntary Disclosure
The Streamlined Voluntary Disclosure program is put in place to protect taxpayers who have not properly reported their foreign income, through no willful fault of their own. According to the IRS, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law. Similar to the Voluntary Disclosure program, a taxpayer is ineligible to take part in the Streamlined Voluntary disclosure program if they are already under a criminal investigation due to their failure to report foreign income. Individuals who live either domestically or abroad are eligible to take part in the Streamlined Voluntary Disclosure program. To take part in this program, you must be able to certify that you were not willful in the failure to properly report your foreign income. The team at Evolution Tax and Legal can work with you to ensure you meet all necessary qualifications to take part in this program and we will help you make a plan for resolving any tax penalties you may be facing throughout the process.
Delinquent International Information Return Program
The Delinquent International Information Return program allows taxpayers who have failed to file the proper foreign income forms or who have failed to report foreign income but have a reasonable cause to voluntarily report their failure to comply and work with the IRS to pay the necessary taxes and penalties. The Delinquent International Information Return procedure is complex because it requires filers to certify that for any entity that is being reported, there was no involvement in tax evasion or tax fraud. This requires more detailed paperwork to be attached to the filing, and submission processes change from year-to-year to account for changes in procedure. The team at Evolution Tax and Legal has worked with many clients to successfully file their Delinquent International Information Returns, and we can work with you to decipher the forms and submit the proper information to avoid further penalties due to your failure to file.
Evolution Tax and Legal Can Help
Whether you are in a situation where you have willfully failed to file an FBAR, or you have done so without fully understanding, the best option is to begin exploring processes to report your failure to report foreign income to the IRS. At Evolution Tax and Legal, we understand the options available to you, and we can work with you to determine how to rectify the situation with minimal penalties and criminal investigations. The best option is to get started as soon as possible, before any further difficulties arise. Our team of accountants and attorneys will do everything in our power to protect you from penalties and criminal prosecution and work with you to dispel any delinquency with your taxes. Contact the team at Evolution Tax and Legal to begin rectifying your foreign income reporting today.