I'm an American working overseas for 30 years and have always filed my 1040 and 2555 forms and checked the box asking if I have a foreign bank account, yes. I have about $50,000. in my account but have never filed an FBAR because I didn't know about it. I also have $3000. undeclared income on my 2011 return. However it would still be covered under the foreign earned income exclusion had I filed it. My question is: should I amend the 2011 tax return and file an FBAR at the same time? Also how will I be penalized for filing a late FBAR? I haven't cheated on my taxes but these are technical issues I worry about.
A "quiet disclosure" can be very risky. Given the complexity of your issues, you should seek assistance from an experienced tax attorney to develop a strategy for disclosing your offshore accounts . There are civil and criminal penalties that may be asserted for not complying with the FBAR reporting and recordkeeping requirements. For example, a willful failure to file the FBAR or retain records of account can have civil penalties up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation as well as criminal penalties up to $250,000 or 5 years or both . 31 U.S.C. § 5321(a)(5)(C), 31 U.S.C. § 5322(a) and 31 C.F.R. § 103.59(b) for criminal.
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The information provided here is for educational purposes only and is not intended as legal advice for a particular matter. The general information in this answer is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties. This posting does not create any attorney-client relationship. For specific advice about your particular situation, consult a qualified attorney. CHRISTIN BUCCI, Esq., CPA, LL.M. is an experienced tax attorney with offices located in Fort Lauderdale and Miami, Florida, who is licensed to practice law in Florida, Ohio and the District of Columbia.
No guessing here - get with a tax attorney and get the situation resolved as quickly and directly as possible.
Evan A. Nielsen
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Evan A. Nielsen is licensed to practice law in California. The information provided here is for educational purposes only and is not intended as legal advice for a particular matter. This response does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult an attorney.
Definitely hire a tax attorney that deals with FBAR issues.
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I agree with the other answers to this post, especially Ms. Bucci's answer. As Mr. Nielsen and Mr. Larson state, it is critical that you retain an attorney. This is a potentially criminal issue. You are not at all likely to be prosecuted for failing to file an FBAR, but the combination of very high civil penalties and possible criminal liability should be enough for you to recognize the need to get a professional involved. I am going to give you some practical advice to get you started on thinking about a resolution. There are two basic routes you can take and you should consult with a local Tax Attorney to see which is best for you. The first route is as Ms. Bucci has suggested to make a "quiet disclosure." This means you will amend your returns and go back and make these FBAR filings and pay tax on any undeclared interest or other income you might. This is by far the cheaper option for most people. Your second option is to go through the Offshore Voluntary Disclosure Program ("OVDI"). However, if you go through the OVDI program, they are going to calculate at least a 25% penalty on the year where you have the highest balance. In your case, assuming the $50,000 has been indicative of the average accrued balance in the account over the last decade, you are looking at a $12,000 penalty, plus any tax due on undeclared interest, etc., minus any applicable credits. You need to talk to someone with familiarity with the OVDI and Quiet Disclosure options who has seen cases play out going both ways. They need to see all your prior year returns at least for the last 6-10 years, and they are going to need to see all of your foreign bank accounts and/or investment accounts and really analyze what you will need to pay depending on which route you take and then the two of you need to settle on a strategy. You are most likely going to need to file Amended Returns along with the FBAR forms. I would recommend finding a Tax Attorney or a Tax Attorney/CPA for this rather than an accountant. I have found that most accountants do not really understand the FBAR/OVDI system, at least when you are going back to correct past errors. You need to have a coordinated approach, so it may not be wise to hire an accountant first to do the returns, without having an attorney on board and a strategy worked out. This is a complex issue which is fraught with danger, but can be worked out successfully by a competent professional. I suggest you heed the advice of these posts and start working with someone as soon as possible.