U.S. Citizens Living Abroad with Undisclosed Bank Accounts (Update)

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U.S. Citizens Living Abroad with Undisclosed Bank Accounts (Update) (Golding & Golding, Tax Specialist)

U.S. Citizens Living Abroad with Undisclosed Bank Accounts (Update) (Golding & Golding, Tax Specialist)

U.S. Citizens Living Abroad with Undisclosed Bank Accounts (Update)

Whether it is the recent trial of Paul Manafort, or the general increase in the number International tax fraud convictions by the Department of Justice, the risk of having Accounts, Assets & Investments Abroad has become an ongoing concern for individuals who have foreign money outside of United States.

Foreign Bank Accounts

As a Board-Certified Tax Specialist law firm that focuses exclusively as International Tax Law, we are contacted by thousands of people each year who have issues regarding the FBAR, FATCA, PFIC, CFC, Tax Fraud, Evasion, Expatriation, and related offshore matters.

The individuals who reach out to us are understandably nervous, because the penalties involving foreign Accounts, Assets & Investments can be devastating.

There is Help For You

There are various amnesty programs available, which are designed to reduce, limit and even abate penalties relating to the FBAR.

How Will the IRS Find Me?

This is one of the most common questions receive. Usually, a person believes they are flying below the radar, and for any number of different reasons would not get discovered the US government. 

Typically, the reasons for avoiding detection, include:

  • I do not transfer the money to the United States
  • The money was in the account before I became a U.S. person
  • The foreign bank does not have my U.S. address
  • The U.S. Bank does not know I am a US person

Case Study Example, Brian

In our practice, we have found that examples provide the clearest explanation about life lessons in general – including how the person may get caught by the IRS, and how to avoid that from happening to you.

Brian is originally from Australia. Before relocating to the United States, he lived in many different countries including:

  • United Kingdom (where he has a pension and a Friends Life Policy)
  • Hong Kong (where he has accounts at HSBC and Heng Seng)
  • New Zealand (where he has two homes in a New Zealand trust and a PIE Investment)
  • Isle of Man (where he has two accounts for business).

All of these accounts were opened before Brian became a U.S. person, and therefore the accounts were opened using a non-US address.  

Brian did not bother updating any of the banks before coming to the United States, because he has a trustworthy P.O. Box Service he uses in Australia to receive all of his mail – save for his pensions in the United Kingdom.

Since he will retiring in a few years and wants to take a 25% lump sum distribution to use as a down payment house — the UK Retirement fund has his U.S. information.

Brian Moves to the United States in 2014

In 2014 Brian moves to the United States for work purposes. He’s in the United States on an L-1 visa since his company transferred him to the US. 

Luckily, Brian relocates to Southern California, and can’t get enough of the beaches, weather, and the overall lifestyle.

Brian decides he is going to make United States his home.  This company is just as happy, since Brian is one smart fellow, and is doing great work at the Southern California location – they are glad to sponsor him for Legal Permanent Residency/Green Card Status.

Brian Has to File Taxes

Before coming to the United States, Brian realizes that he has to file tax returns. His company explained to him that they would engage “one of the big four” to handle his tax returns for the first two years, and to conduct any tax equalization services.

*With tax equalization, the foreign company engages an accounting firm to prepare tax returns to ensure that a person’s taxes are “equalized,” so that they’re not paying anymore or any less tax than they would ordinarily pay, due to the relocation.

Brian Meets with his Tax Preparer

2015, Brian meets his tax preparer who seems like a sharp guy. Obviously, Brian has a bit of an accent, and after some small talk with the tax preparer, and the fact that the tax returns will take into consideration any tax equalization services, the preparer explains that there are certain disclosure requirements for the foreign account information.

Brian tells the tax preparer that he would do everything he can to try to obtain information regarding the foreign accounts.  Brian does some research, and decides that while he’s okay with disclosing some of the information, he does not want the IRS to have his entire financial background and therefore decides he is going to hold back on some of the disclosure.

The Dreaded Tax Organizer

Many of the big accounting firms will provide comprehensive tax organizers, which are usually  prepared by attorneys and are designed to ensure that person completes all of the information necessary for the CPA firm to prepare the taxes. It is safe to say that many people do not complete the organizer completely.

Typically, a person only completes the portion that involves them. Brian’s tax preparer has an initial discussion with Brian and together they determine which sections need to be completed, including the section involving foreign money.

Brian completes the tax organizer, but when it comes to the section regarding foreign information, he leaves out some of the accounts.

The preparer correctly prepares the tax returns based on the information that Brian provided, but informed Brian both verbally and in writing that Brian would have to file the FBAR himself.

After doing some additional research, and researching on some expatriate forums, Brian decides on his own not to file the FBAR.

Brian Prepared His Own Returns

For the next two years Brian has the accounting firm prepare his taxes. In 2017, Brian is on his own and besides he may be able to complete the task himself.

FATCA Notice

As Brian begins preparing his own returns using TurboTax (but before he filed), Brian receives a letter from Hang Seng Bank. The bank wants confirmation as to whether Brian is a US person, or Foreign National.

At this time, since Brian received his green card and is now a Legal Permanent Resident, for purposes of the form Brian is now a US person.

In addition, the Bank wants Brian to sign under penalty of perjury that he has met all of his US tax and other filing requirements.

Brian is Scared

At this point, Brian is very concerned. He realizes that his accounting firm filed the Form 8938, since he far exceeded the 8938 threshold. Therefore, even though Brian has not filed an FBAR, he has already disclosed his accounts to the United States.

Moreover, it is a clear that Brian only disclosed some of the accounts not all of the accounts – and of course, any of the accounts that he did not disclose are relatively high in value.

Brian considers just filing the old and current FBAR, along with amending the prior returns, but this could be considered a Quiet Disclosure and therefore he decides not to; instead he wants to safely and legally get into compliance.

Golding & Golding, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.