You may face any of the following penalties for the failure to disclose your foreign accounts:
- Willful or non-willful FBAR penalties.
- Accuracy-related penalties for the failure to report foreign income.
- Civil fraud penalties.
- Late-payment penalties and interest.
- Penalties for a failure to disclose specified foreign assets on Form 8938.
Your exact penalties will depend on the circumstances of your case and the discretion of your IRS examiner.
How to Minimize Your Penalties
If you qualify for a quiet disclosure or the Streamlined Filing Compliance Procedures, you can minimize your exposure to tax penalties by using either offshore disclosure method. Make sure you discuss your eligibility with a tax attorney before using either program.
You can make a quiet disclosure without paying any penalties. You can only use this method if you don’t have any unreported foreign income associated with your offshore accounts.
The Streamlined Procedures may require the payment of a miscellaneous offshore penalty equal to five percent of your highest aggregate account balance. However, this penalty is likely to be significantly lower than the FBAR penalties you’d have to pay if the IRS discovers your undisclosed accounts.
The Offshore Disclosure Program does require the assessment of tax penalties, possibly including willful FBAR penalties. However, you may be able to pay less than the maximum penalty allowed in some cases.
FBAR Penalty Calculations
For example, consider a taxpayer with six years of unfiled FBARs and a maximum account balance of $50,000 during the disclosure period. If willful FBAR penalties are assessed, you could receive up to $50,000 in FBAR penalties.
The examiner has the discretion to assess lower FBAR penalties. The mitigation guidelines give standards the examiner can follow if the taxpayer meets certain conditions, such as cooperation with the IRS and a history of tax compliance.
In these cases, a reduced penalty of $1,000 or five percent of the account balance can be assessed. Even if the five percent penalty is assessed for each year, this would result in a maximum penalty of $15,000, depending on the account balance during each year of the disclosure period.
If you are facing FBAR penalties or considering making an offshore disclosure, talk to a tax attorney to see how you can minimize your FBAR penalties and other tax penalties.
Get help with foreign bank account matters by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.