Still have a foreign bank account? Tell the Tax Man now!
If your 2014 tax return—and maybe earlier returns—failed to disclose your foreign bank account to I.R.S., you now have another opportunity, on June 30, to compound the problem. A U.S. taxpayer with signatory authority over or an interest in a foreign financial account holding more than $10,000 at any time in the year must also file a “Report of Foreign Bank and Financial Accounts” or “FBAR” (FinCEN Form 114) with the Treasury Department by June 30, 2015.
Unlike your return, there is no filing extension to October. The statute of limitations gives I.R.S. six years after the June 30 filing date to penalize your failure to file. The civil money penalties and criminal consequences of failure to file the FBAR may exceed the tax, penalties, and interest applicable to unreported income. The maximum penalty for a “non-willful” failure to file the FBAR is $10,000 per account. An intentional failure may expose you to a maximum penalty of $100,000 or 50% of the account balance, whichever is greater.
There are alternatives, some less palatable than others. Inaction is not an option. You cannot run out the clock and, eventually, I.R.S. will find you. If your conduct was intentional or you were “willfully blind” to your account reporting obligations, then you belong in the Offshore Voluntary Disclosure Program (OVDP), which carries a hefty miscellaneous offshore penalty, requires full payment of all taxes, and filing and payment of all FBAR penalties for an eight-year period. OVDP will, however, insulate you from criminal prosecution.
If you can certify under oath that your conduct was “not willful”, but negligent or inadvertent, you may qualify for “streamlined” treatment. Essentially, streamlining waives or reduces certain penalties over a shorter tax period, but does not foreclose criminal prosecution. These avenues are not available, however, if I.R.S. has already contacted you or the Department of Justice has your foreign financial institution under investigation.
Suppose you disclosed the existence of your financial account on prior year returns, reported your income from the account, and paid the tax on it—but you did not file the FBARs. Should you file them now? Yes. Will I.R.S. assert penalties because they are delinquent? No.
If I.R.S. has not previously contacted you and there is no tax liability, you should file the delinquent FBARs promptly and attach a statement why you are filing late. The same applies to failures to file international information forms for controlled foreign corporations and foreign trusts.
Do not attempt this at home. Invest in an experienced tax professional. Contact Paul Murphy to protect your interests.