What’s The Big Deal About Foreign Bank Accounts?
Anyone paying attention to the media for the last month or so must be aware of the battle the IRS has waged with UBS in order to obtain information about owners of heretofore “secret” accounts in Switzerland. This is part of an IRS effort to track down tax delinquents who are using overseas accounts to hide their income and assets. A settlement was recently announced whereby the Swiss agreed to reveal a relatively small (in the grand scheme of things) number of the accounts—4,450 versus the 52,000 that the IRS originally alleged—in order to resolve the dispute. At this point, the IRS has its eyes on other foreign institutions and one can be sure that this is not going to be the end of the IRS’ efforts.
So what does all this mean? The first thing to understand is that there is absolutely nothing illegal or morally improper about having a foreign bank or financial account. People have such accounts for many reasons. Some have business connections or spend a great deal of time overseas, and having an account in their host country is natural. Others, out of fear that the U.S. banking system is going to collapse, have put money in places where they believe it is “safe,” although this writer frankly wonders how long banking systems outside the United States would survive if the U.S. system collapsed as completely as they seem to fear. Other people have migrated to this country, but had signature authority over accounts in their country of origin which they failed to close, although they now have very little contact with those accounts.
From the IRS point of view, there are three problems. First, U.S. taxpayers are subject to “worldwide” taxation of their income. Some people use foreign bank accounts to stash income they are supposed to report to the Government, and other simply fail to report income such as interest from the accounts they have overseas. In doing so, they are filing false income tax returns to the extent that income is not reported. Second, there is a harmless looking “check the box” entry on Schedule B of every Form 1040, asking whether one has an financial interest or signature authority over one or more accounts outside the United States. It is likely that most people file their tax returns without paying any attention to this, but if someone either owning an account overseas or having authority marks it “no,” that return is false. The third and perhaps least known problem is that for those who do have such access to foreign accounts holding more than $10,000 in the aggregate, the law requires the annual filing of a Form TDF-90-22.1, known to tax practitioners as an “F BAR.” This form is required to be filed by June 30th of the following year, reflecting all foreign accounts and the balances in them. It is not filed with the income tax return, but rather is filed with an IRS Service Center in Michigan. There are serious civil and criminal penalties that can be imposed on anyone who files a false income tax return or who fails to file a timely and accurate F BAR.
Fortunately for those who took advantage of if, the Internal Revenue Service announced a “voluntary disclosure” program earlier this year, under which eligible individuals could come forward, file six years of amended returns, pay the additional income tax and interest, pay a negligence penalty on the income tax deficiency, file the delinquent FBARs, and pay a penalty based on a percentage of the highest balance in the account. Unfortunately, that program “expired” on October 15, 2009.
If you are a person having an interest in or authority over a foreign account, and did not attempt to participate in this program, do not wait another minute to contact a knowledgeable tax lawyer to determine what to do. The stakes are great, and while the IRS is going to be preoccupied with the persons who participated in the program, it has names of many other account holders, and the worst thing to do would be to just sit back and hope the IRS won’t come calling.Explore posts in the same categories: Uncategorized comment below, or link to this permanent URL from your own site.