What if my Foreign Bank Reports me to the IRS?
- 1 The Basics
While many firms will use scare tactics to try and instill fear in U.S. Citizens and Residents who have unreported foreign accounts, there is some truth to the danger that the IRS may penalize you heavily for failing to report your foreign accounts.
Namely, if the Internal Revenue Service gets the information regarding your undisclosed foreign account before you have a chance to get into compliance, it can spell trouble. Why? Because if you are contacted by the IRS, Department of Treasury or Department of Justice for an audit or examination before you file the necessary paperwork to get into compliance, it will disqualify you from the offshore disclosure programs (OVDP or Streamline Compliance Filing Procedures).
How do I Know if the Bank Will Report me?
While it is impossible to know whether the foreign bank or foreign financial institution will actually report you to the IRS, some banks are issuing what is commonly known as FATCA Letters. FATCA is the Foreign Account Tax Compliance Act and it is a U.S. Law that was enacted and accepted by over 100 Foreign Countries and thousands of Foreign Financial Institutions in order to crack down on offshore tax evasion.
If you receive one of these letters, it is notice that you should probably ensure that your foreign accounts that foreign income has been properly reported to the IRS and U.S. government. The FATCA Letter will usually ask you to certify your US status (aka, are you a U.S. citizen, legal permanent resident, or foreign national subject to US tax under the Substantial Presence Test).
If you receive one of these letters it is very important to contact an experienced offshore disclosure where to evaluate your facts and circumstances to determine your potential liability.
Where do I Start?
While being out of compliance the overwhelming and downright scary, we can assist you get you back into compliance quickly. Golding & Golding is a law firm dedicated exclusively to offshore disclosure. We represented hundreds of clients in more than 40 countries with offshore disclosures ranging from $50,000 to nearly 40 million in a single disclosure.
The following is the first step, basic summary of offshore disclosure and what your responsibility/options may be:
Golding & Golding is a flat-fee, full-service firm; we are lawyers who assist international clients in reporting their offshore accounts to the IRS. Most recently, many of our clients learned about Foreign Bank Account reporting requirements when they received a FATCA Letter from their Bank, asking them to certify their U.S. Status by submitting either a W-9 or W-8 BEN.
Who Has to Report?
We have represented numerous clients worldwide with issues similar to yours:
– Expats who relocated overseas and did not know they had to report their foreign accounts.
– U.S. Citizens who live overseas and may or may not earn significant income, but have accounts in a foreign country.
– Legal Permanent Residents of the United States who relocate back to a foreign country but are unaware that they are still required to report the foreign accounts.
– Non-Residents who meet the substantial presence test and therefore are required to report foreign bank and other accounts to the US government.
Please do not worry. We can assist you as we have assisted hundreds of clients in over 40 countries disclose upwards of $40 million in a single disclosure.
We are available seven days a week and provide flat-fee and full-service representation to our clients around the world.
These are the most basic rules when it comes to foreign accounts and foreign income:
If you are either a US Citizen, Legal Permanent Resident (aka Green Card holder or recently gave up your Green Card) or foreign resident who meets the substantial presence test, then you are required to report your worldwide income to the IRS. This means that even if you do not have any US-based income, you are still required to report your worldwide income (even if it is the type of income which is not taxed in your home country such as interest and dividend income in most Asian countries). And, if you have enough foreign income to meet the minimum threshold for having to file a US tax return, then you are required to do so even if it is based on your foreign income alone.
If you meet the requirement for being a U.S. “Taxpayer” (even if you do not meet the threshold for having to file a US tax return), you are still required to file an annual FBAR (Report of Foreign Bank and Financial Accounts). The threshold is as follows: if at any time during the year, you have more than $10,000 in foreign accounts (whether the money is in one account or spread over numerous accounts), you are required to file an FBAR.
In addition, if you have significant amounts of money overseas, then you may also have to file additional forms such as an 8938 (FATCA Form) or 8621 (Passive Foreign Investment Company, which includes Foreign Mutual Funds along with as many other passive investments). There are many other forms you may have to file, but we determine those on a case-by-case basis.
Fines & Penalties
Unless you are criminal, chances are the IRS or Department of Justice will not be banging down your door to come drag you to jail. With that said, the fines and penalties can be very steep and depending on your particular circumstances, may include penalties upwards of 100% of the value of your foreign account. If the IRS believes you were willful (aka intentional), then they may launch a criminal investigation against you and the penalties and fines can get much worse from here, including Liens, Levies, Seizures…and worse.
Customs Holds and Passport Revocation
With the implementation of FATCA (Foreign Account Tax Compliance Act), the United States is heavily cracking down on offshore tax evasion and unreported foreign accounts in general. The IRS and US government have the power to both revoke your passport as well as possibly hold you at the airport “customs hold” to question you on the spot (usually outside the presence of your attorney).
Getting Into Compliance
Getting into compliance should be mandatory on your “to-do” list. Even though our firm, Golding & Golding, is based in Newport Beach, we represent clients worldwide. A majority of our clients live overseas in over 40 countries. We have helped numerous clients get into compliance and are regarded as one of the top Offshore Disclosure Law Firms worldwide.
To that end, there are three main methods of compliance:
(1) Streamlined Compliance
This program is for individuals who were unaware of any requirement to file an FBAR and/or report their income on a US tax return. The penalties under the streamlined program are significantly reduced and may possibly be waived depending on whether a person qualifies under the strict definition of foreign resident for offshore disclosure purposes.
This program is mainly for individuals and businesses who were willful, aka were aware they were supposed to report their foreign accounts but intentionally hid or kept the account/income information secret.
(3) Reasonable Cause Statement
This is not a particular program; instead, it is a method for getting to compliance while attempting to avoid any penalty. There are many pros and cons to this method depending on your specific situation, which must be evaluated carefully with your attorney before making a decision.