Will The IRS Find Your Foreign Bank Account?

Will The IRS Find Your Foreign Bank Account?

Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114). And hopefully interest and dividends from your foreign bank accounts will already be reported on your annual US tax return, including foreign disclosure forms and statements (Form 1040). When the IRS finds your foreign bank account and it has not been reported properly you are in a lot of trouble. Just Google FBAR penalties- nothing good comes up.

But I don’t owe any extra taxes? I live overseas and pay tax where I live? My exemption for working overseas eliminates any US tax owed?

Read the articles you googled on FBAR penalties. Form 114 is a disclosure statement only, but some of the smaller penalties are $10,000 and 5% of your highest account balance. The penalties escalate from there to higher civil penalties and possible criminal penalties. You need to file an FBAR disclosure annually on your foreign bank account if the balance exceeded $10,000 on any day during the tax year.

How do you know the IRS will find my foreign bank account?

The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Starting July 1, 2014 Foreign Financial Institutions are required by the US government, under FATCA, to report information regarding accounts of all US citizens (living in the US and abroad). The IRS will get information about all foreign bank account beginning in 2015 for 2014 applicable bank accounts. Based on similar computerized IRS compliance programs, the IRS will continue to encourage voluntary compliance and education while starting enforcement actions by correspondence letters and data mining. The IRS will know you have a foreign bank account because your bank will tell the IRS you have a foreign bank account every year starting in 2015.

How are taxpayers and the IRS reacting?

According to the National Law Review since 2009, 50,000 new filers have come forward and filed FBAR forms. The IRS is expected to list FBAR non-reporting as one of the dirty dozen tax scams in 2015. According to Mark Nestmann there are at least 3 million unreported FBAR accounts while 800,000 FBARs are filed annually. Those unreported FBAR accounts are a large IRS compliance gap that the IRS is going to correct.

What should I do?

If you have a foreign bank account or know someone with a foreign bank account, they should take action as soon as possible. Simple compliance measures with limited or no penalties are still available. Action before receiving an IRS notice that the IRS has found your foreign bank account can save you a lot of money and grief.

How do I confess my non-filing of FBARs to the IRS?

Several amnesty programs are available. Overseas US citizens who qualify for the Streamlined Filing Compliance Procedures, can file 6 FBAR years plus 3 years of 1040 filings and pay any tax owed (along with several other requirements to qualify), and can avoid penalties. Other programs do exist. Silent compliance, by simply beginning to file FBAR statements is not a good solution, as the IRS is being encouraged to data mine new FBAR filings.

Can’t I just renounce my US citizenship?

The process for renouncing requires tax compliance so you need to be tax compliant before considering this option.

The IRS will find your foreign bank account so I would advise you to seek assistance and correct the FBAR non-reporting issue with the IRS as soon as possible before the IRS offers their solution for FBAR reporting noncompliance. Being proactive will save you a lot of time, money and is the right thing to do, so please consider getting in compliance with the IRS sooner rather than later.

*In accordance with Treasury Regulations Circular 230, any tax advice contained in this article was not intended to be written to be used, and cannot be used for the purposes of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter addressed herein. This article is also not meant to constitute legal advice for a particular client, for which consultation with a qualified attorney is required.

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