Residents of theUnited Statesholding foreign bank accounts with more than $10,000 in the aggregate at any time during the previous year are required to file a report of Foreign Bank and Financial Accounts (FBAR) to explicitly report the existence of and income from such accounts.
The goal of FBAR is to enable people holding foreign bank accounts a way to bring that money into the United States in a “clean” way, without any civil or criminal consequences and only a small penalty (anywhere from 0 to 25%), if applicable.
So if you hold $500,000 in a bank account in Bermuda, which is notorious for such activities, filing the FBAR is a good way to convey that information to theU.S.government.
However, several issues have become clear:
1. FBAR is not new. Residents were always required to file it. If you file it freshly in any year, the IRS can question the reason and potentially assess penalties for failure to file in the past…and come back with more questions.
2. If you reported all your foreign income in your tax returns and simply didn’t file the FBAR, you’re better off than if you didn’t declare it. You can claim ignorance of the requirement, though the success of such petitions is unclear. In addition, if you checked the box on your Schedule B that asked if you own foreign accounts, that’s even better. As long as you didn’t explicitly deny the existence of those accounts, and declared that income in your returns, you fall in this category and have a shot at incurring no penalties.
3. If you didn’t declare that income, you’re now in a bit of a challenging situation. A “Voluntary Disclosure Practice” enables you to come clean with your disclosure and income reporting. However potential penalties still exist with this program.
IRS problems don’t go away by ignoring their existence, so we recommend addressing them as soon as you can. If you need someone to help steer you in the right direction – or to prepare your taxes so you can avoid problems from the start – contact us at Office@CPAsite.com or (904) 396-5400.