Do you have foreign accounts as part of investment strategy? Have parents in another country given you signature authority over their bank accounts? Did you inherit a trust that contains assets located at a foreign bank?
If your offshore assets totaled $10,000 or more at any point during 2015, you should file an FBAR – Report of Foreign Bank and Financial Accounts. The filing deadline is coming up on June 30.
How do you file an FBAR?
You can complete Form 114 and file it with the Treasury’s Financial Crimes Enforcement Network (FinCen). No filing extensions are available.
Because the penalties for a willful or nonwillful failure to file are Draconian, this should not be ignored. Civil penalties start at $10,000 and go up to 50 percent of an account balance even for a nonwillful failure.
It is your first time filing an FBAR? Seek counsel
If you only realized recently that you should file an FBAR, but you have had foreign accounts, for years you need to be careful. How will you answer any questions about why you haven’t filed in the past?
Generally, the statute of limitations is six years on civil or criminal penalties. This exposure is daunting, but developing a plan can get you back into compliance and limit liabilities. Determine which tax years will count. Locate all past statements. Then get advice before filing through a voluntary program or making a quiet disclosure (filing past FBARs with amended tax returns).
Focus shifting to quiet disclosures
While the IRS has netted taxes and penalties totaling more than $5.4 billion from 40,000 offshore disclosures, its next priority is likely to be the quiet disclosures. A Government Accountability Office report encouraged the IRS to closely scrutinize first-time offshore account filings.
There are two formal offshore disclosure programs that may be available:
- An Offshore Voluntary Disclosure Program
- The Streamlined Filing Compliance Procedure
A tax attorney can help you determine the best route to come into compliance and assist you through the process. You can only take advantage of these programs proactively. If you have been contacted by the IRS about delinquent FBARs or are under civil examination or criminal investigation, it is already too late.