If you’re one of the many Americans who maintains foreign accounts overseas that you’ve never bothered to report to the IRS, you’ve probably heard the bad news. The IRS is coming for you. Oh, the agency may not discover your account today, or even tomorrow, but the odds are that you’ll eventually be found out. Now, here’s the really bad news: when you’re discovered, there are severe penalties that will make you wish you’d simply filed in accordance with the law. And if you’re planning on pleading ignorance of the law, save yourself the trouble.
The fact is that even though the act that led to this new IRS crusade to ferret out foreign accounts – the Foreign Account Tax Compliance Act (FACTA) – is of relatively new origin, the legal requirements it was designed to enforce have been in place since 1970. That’s forty-five years for anyone who’s counting. And yes, that is correct: for four decades, the Internal Revenue Service did little to counter wealthy Americans’ efforts to hide their assets in foreign bank accounts.
That might lead some to think that the IRS failure to focus on this issue for the first forty years of the FBAR (Report of Foreign Bank and Financial Accounts) rules might make the agency more lenient toward any who try to plead ignorance if their accounts are discovered. Those assumptions are based more on wishful thinking than on anything even remotely resembling reality. The fact is that the IRS has indicated that it has no intention of just assuming that account holders had no way of knowing that they were breaking the law.
In fact, the agency has indicated that its default view on that issue will be that anyone who failed to report their account while simultaneously failing to attempt to learn about their responsibility to file an FBAR will be guilty of a willful effort to avoid compliance. The IRS has adopted a position that assumes that they have made the process of learning about filing requirements so accessible to everyone that the only possible reason that someone could not know has to involve a conscious decision to avoid that knowledge.
And, to quote the Bard, “there’s the rub.” As tempting as it may be to simply wait for the IRS to catch you, that choice may end up costing you more than if you voluntarily disclose your accounts now. For while you may have been planning on arguing that your ignorance of the law entitles you to some leniency, you can rest assured that it almost certainly will have the opposite effect. They will simply assume that you intentionally tried to avoid knowledge that was easily obtainable, and will deal with you just as they would anyone else who consciously sought to violate the law.
There’s simply no escaping the fact that the IRS is deathly serious about its mandate to root out all foreign accounts and collect back taxes owed by those American account holders. Your best option is to recognize that simple truth now, and make your plans accordingly. Just know that if you wait for them to discover your account before you voluntarily disclose it, ignorance of the law will definitely not protect you from any punitive measures they decide to enforce.