Once upon a time, Americans used to be able to shelter money in foreign bank accounts without much concern that the IRS would ever find out about it. Many of those countries even had laws that ensured account holder privacy. That all changed over the last decade, as the US government began aggressively targeting those accounts and pressuring foreign governments and banks to provide account information for tax purposes. If you have bank accounts in foreign countries and have yet to file a Report of Foreign Bank and Financial Account (FBAR), here are six reasons why you should do so as soon as possible.
The IRS is Serious about This Issue
With the passage of the Foreign Account Tax Compliance Act (FATCA), the IRS found itself with a new and stronger arsenal of weapons to use in the enforcement of tax laws. That Act allows the IRS to subject foreign banks that fail to report U.S. citizen account activity to harsh penalty taxes. The agency has used this tool aggressively and has brought most of the major foreign banks into compliance.
New Fines Are Extremely Punitive
That same Act gives the IRS wide latitude to assess penalty fines against individuals who fail to meet their legal reporting requirements. These fines are not minor either. In fact, the law allows penalties of $100,000 or half of the account balance. The worst part for you is that that penalty actually ends up being the greater of those two options!
Penalty Enforcement Requirements Favor the IRS
It used to be that arguing with the IRS involved complex legal questions about the source of your income, or what portion of it is actually taxable. FATCA has changed all that too. In fact, the penalties can be assessed with ease. All the IRS has to do is demonstrate that you have the foreign account and that you failed to file the proper FBAR.
Compliance is Simple
Right now, compliance is simple. All you have to do is file your FBAR before the 15th of April in any given year (starting April, 2016). Note that this is a requirement for anyone who has an account worth more than $10,000. You just go to the reporting website and provide the necessary information. There are also a number of independent providers who can aid you with the process. Keep in mind that there are no taxes due at the time of filing, so there is no reason to put it off.
You Cannot Keep it Secret Forever
To put it as bluntly as possible: the IRS is eventually going to catch you. Better to deal with the issue now than face what could be even stronger penalties in the future.
Current IRS Disclosure Options May Expire
Right now, there are special options that can make this process easier for those who voluntarily disclose their accounts. You can even avoid those severe penalties by coming forward before you are discovered. However, these types of special options are not going to last forever, so it just makes sense to take advantage of them while you can!