What if an Estate Discovered Undisclosed Foreign Accounts?

What if an Estate Discovered Undisclosed Foreign Accounts?

Estate with Undisclosed Accounts Abroad

When a person passes away, dealing with the IRS is probably the last thing on the minds of their loved ones. Depending on the size of the estate, it can take the heirs a significant amount of time to compile sufficient information to evaluate the decedent’s assets, bank accounts, and other investments. After some digging, the estate may learn that the decedent had overseas accounts, assets, investments, and/or income that had not been properly reported to the IRS and FinCEN. This is not an uncommon occurrence — and there are several safe methods for the estate to bring the decedent and/or estate into compliance in order to avoid future issues and tax headaches:

Compile a List of the Accounts

From the outset, it is important to have a baseline understanding of the total number of foreign accounts — including the value and categories of foreign assets. If a Taxpayer believes there are some unreported foreign accounts or assets, the first step should be identifying what those accounts and assets are — and how far back the noncompliance goes. It is also crucial to keep in mind that there are Statutes of Limitations — and compliance does not need to go back for all years, only those in the compliance period.  

Review Old Tax Returns

Sometimes, people will be surprised to learn that the decedent’s offshore accounts may have been previously and accurately reported to the IRS. It is also crucial to determine if the return was actually filed — and if possible any amended returns were filed as well.

Did Decedent Use a Tax Professional?

If the person who passed away utilized a tax professional, it may help to get in contact with that prior tax professional to get an understanding of what international information reporting forms were filed and what information was known or unknown to the Tax Professional. Before reaching out to the prior tax professional you may want to consult with an international tax specialist attorney first to get an understanding of the potential pitfalls and how best to proceed — since there is no attorney-client privilege with the prior tax professional, non-attorney.

What is the Extent of Foreign Account Non-Reporting

Once the family members or other beneficiaries are aware of the total number of accounts and the extent of the nonreporting, then they should evaluate and assess how large or small the project of getting into FBAR & FATCA compliance might be. It is also important to understand the timing implications and strategies for filing the decedent’s last tax return, estate tax returns — and if any future tax filings are required.

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