By now, most people who have bank accounts overseas should be aware of the Internal Revenue Service’s more aggressive approach to uncovering hidden assets and taxing and penalizing the Americans who own them. In the last five years alone, billions of dollars in unpaid taxes and penalties have been collected by the taxing agency, as tens of thousands of account holders have come forward to accept amnesty from harsher penalties and possible criminal prosecution.
If you’re one of the many who are still holding out hope that you can go undetected, or who think that they can somehow escape consequences if they can just remain hidden until the statute of limitations runs out, that’s a risk that almost certainly won’t pay off. Oh sure, there is a slim chance that you might somehow manage to never be discovered by the IRS, and at the same time never have your foreign financial institution report your account on its own initiative – but it’s an extremely slim chance.
As for simply waiting out the IRS and somehow getting past a statute of limitations, forget about it. The fact is that you’re not going to be able to enjoy that sort of technicality-based luxury. Now before you rise up and point out how even the IRS is subject to certain time-based limitations on its actions, just consider the facts. And believe us when we tell you, these facts are not going to be in your favor in any dispute over undisclosed accounts when you’re trying to rely on a statute of limitations argument.
You already know that you are required to file a Report of Foreign Bank and Financial Accounts, or FBAR, for any financial accounts that you hold in financial institutions outside of the United States if they are valued at$10,000 or more. Now, if you’ve never filed the proper report, you might think that the standard statute of limitations would apply, right? That would mean that the IRS would have three or six years to initiate action. Sadly, those limitations do not even come close to applying in these cases.
The reason for that is quite simple. Those statute of limitations issues only arise for returns that have been filed. When you fail to file your required FBAR, the time clock on those limitations never begins to run. That means that there is no effective time bar on any IRS action until they actually discover the existence of your hidden account. At that point, they then have their three or six years to initiate action against you.
So, if you cannot simply hide from the IRS and wait for non-existent time limits to be reached, what can you do? If you want to avoid some of the most severe penalties found anywhere in the tax code, and the possibility of being criminally prosecuted, there’s only one option: voluntarily disclose your account now and come to a settlement with the agency. The fact is that the longer you wait, the more punitive their reaction is likely to be if they catch you before you come forward.