Taxpayers with offshore bank accounts need to be very careful to comply with all applicable IRS reporting requirements. A failure to properly disclosure your foreign accounts can lead to FBAR penalties, FATCA penalties, and even potential criminal prosecution.
Make sure you satisfy the following offshore reporting requirements and consult a tax attorney if you failed to comply with these laws in previous tax years.
Report Foreign Income
You need to report income earned in foreign countries on your tax return. This includes interest and dividends earned on foreign bank accounts or other offshore accounts.
In some cases, you may qualify for a credit or exclusion that reduces or eliminates your tax liability on foreign income. However, you must still report this income on your tax return.
Form 8938
You may need to file Form 8938, Statement of Specified Foreign Financial Assets, if you have offshore accounts. There are several differences between the reporting requirements for Form 8938 and for FBARs:
- Form 8938 is filed with your tax return, while the FBAR is filed separately.
- The asset thresholds for Form 8938 are different for taxpayers living overseas and taxpayers living in the United States. The FBAR requirements are the same for both types of taxpayers.
- The asset thresholds are different for FBAR and Form 8938.
A failure to file Form 8938 can result in a $10,000 penalty and additional penalties if you fail to respond to an IRS notice asking you to file this form.
FBAR
The FBAR is filed through FinCEN’s e-filing system. It is not part of your income tax return.
The general FBAR filing requirement exists if the value of your foreign accounts exceeded $10,000 at any time during the year. The penalty for failing to file an FBAR is generally $10,000 per unreported account. A willful failure to file an FBAR can result in a penalty of $100,000 or 50% of the account balance, whichever is greater.
If you failed to meet any of these requirements, you may need to amend your tax returns and file delinquent information returns, including FBARs and Form 8938. There are several different offshore disclosure methods you can use to accomplish this and reduce your exposure to massive tax penalties.
Consult a tax resolution attorney to determine the best course of action for meeting your foreign account reporting requirements.
The Gartzman Law Firm can evaluate your case to determine your best offshore disclosure strategy. Use our contact form to request a consultation with an Atlanta tax resolution attorney.