Who Needs to File a Foreign Bank Account Report with the IRS?
Any U.S. Citizen or resident who has signatory authority over or a financial interest in a financial account located in another country is required to file an FBAR (Form TD F 90-22.1) with the IRS, provided that the combined balance was more than $10k at any time during the calendar year. The FBAR filing is due each year by June 30th. The extension to file an income tax return does not extend the due date for filing the FBAR.
What are the Penalties for Not Filing?
The link at the bottom of this article sets forth the civil tax penalties and the criminal tax penalties that may be asserted for not complying with the FBAR reporting and record keeping requirements. They are draconian, and can cost more than the balance in the foreign bank account; not to mention years in jail.
What is a Quiet Voluntary Disclosure?
There are two types of voluntary disclosures: the quiet voluntary disclosure and the noisy voluntary disclosure. In a quiet disclosure, the taxpayer sends in new or amended tax returns, with a check, along with FBARs, and hopes that they gets processed without ever hearing from the Criminal Investigation Division (CI). Although in the past this would generally result in no prosecution occurring, the IRS is now taking the position that a quiet disclosure will not insulate a person from going to jail.
How Can Voluntary Disclosure Help Alleviate Possible Penalties? (Part I)
A noisy voluntary disclosure has two major benefits:
1 - Although making a voluntary disclosure does not guarantee that a criminal prosecution will not occur, it may result (and in the past almost always has resulted) in a criminal prosecution not being recommended.
2 - A taxpayer who made a voluntary disclosure by Oct. 15, 2009 had his civil penalties limited to a maximum of 20% (rather than 50%) of the highest aggregate balance in the accounts during the six preceding years.
How Can Voluntary Disclosure Help Alleviate Possible Penalties? (Part II)
3- Persons making voluntary disclosures after that date no longer qualify for the maximum penalty of 20%. The IRS has not announced what penalty will be imposed for disclosures after Oct. 15, 2009; however it is likely to be more than 20%. A noisy disclosure will still insulate most persons from going to prison, and in cases where the failure to file an FBAR was not willful the penalties could be much lower than even 20%.
What to Do If You Have An Undisclosed Offshore Bank Account
Careful consideration must be given to whether or not a voluntary disclosure should be made taking into account all of the facts and circumstances. Ignoring the problem will not make it go away, and it is only likely to get worse.
Keep in mind that if you discuss this problem with anyone who is not an attorney then there will be no attorney client privilege, and that person, including an accountant could be forced to testify against you in court.
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