Foreign Accounts and FBARs
When a person has an account in a foreign country, that person is required to check a box on Schedule B of their income tax return giving notice that the account exists and then required to file a Report of Foreign Bank and Financial Accounts (FBAR), Form TD F 90-22.1. It is no secret that the IRS has, in recent years, developed the tools and weapons to go after secret accounts that exist in what were formerly considered to be tax havens. Swiss and Israeli accounts have received the most attention, but the IRS is getting better at finding these accounts each day. A voluntary program exists whereby you can tell the IRS about your account and avoid criminal prosecution. The penalties are steep, but they are often better than the situation where the IRS finds out about the account before you tell them.
There is a decision tree to consider if you have a foreign account that you have not previously reported. Should you enter the voluntary program? Can you enter the voluntary program? When, if ever, is it best not to enter the voluntary program? Should you begin to check the box on Schedule B and file FBARs each year?
In some instances, the window to enter the voluntary program is closed because the bank that your funds are in has already been compelled to provide a list of U.S. depositors to the IRS. If the IRS already has your name, it is too late to enter the voluntary program, even if the IRS has not yet sent you a single notice. Does this mean that you are going to jail? Not necessarily. There are many components to a criminal tax case – they can be difficult for the government to bring and the IRS tends to bring criminal complaints against those that can serve as an example. That may or may not be you.
If you cannot go down the voluntary path, there is a good chance that your penalties will be more than they would have been if you had come forward in the voluntary program. The amount of penalties will turn on whether your non-filing of the FBARs is seen as willful or nonwillful. Many factors go into this determination.
If you have a foreign account, it is time to consider what to do. Scott Novak is experienced at working with clients who have foreign accounts and has negotiated reasonable settlements for clients with the IRS. Please call to confidentially discuss your foreign account matter, whether or not the IRS has contacted you.