As we’ve indicated many times on this blog, there are significant disclosure requirements concerning offshore accounts and income. The Foreign Account Tax Compliance Act (FATCA) requires offshore financial institutions to either report accountholder information, or face significant penalties.
What is important for Michigan residents with offshore accounts is to make certain they report this information as well. The IRS will compare what you provide with what the offshore institutions provide. Any inconsistencies could result in the IRS and treasury officials looking into your case.
What types of offshore income you must report
On your Report of Foreign Bank and Financial Accounts form (FBAR), you will need to report a wide variety of items. Offshore income includes foreign earnings and wages, interest, dividends and other sorts of income. Though there may be entitlement to a foreign tax credit, the IRS will still want complete reporting of this income.
You need to file an FBAR if the value of your accounts exceeds $10,000. You may also have to file a IRS Form 8938 if your foreign assets exceed $50,000. Form 8938 is significant because it requires reporting on assets not covered on the FBAR form.
Penalties include asset seizure, wage garnishments, levees and possible prison time
The reporting requirements are complex. Even failing to check the foreign account box could result in allegations of tax evasion or tax fraud. While the statute of limitations for a substantial omission is six years, there is no statute of limitations concerning tax fraud charges. That means the IRS could be pursuing you forever regarding claims of fraudulent returns.
When implementing penalties, the IRS could take 50 percent of the value of your account. They could also assess other penalties and even file criminal charges.
No one will wish to face such a prospect. When facing such allegations, you may wish to discover your options by speaking to a tax attorney who understands your situation. Your chances going it alone against the IRS are small.