If you’ve been putting off disclosing your offshore accounts, you should understand the risks of your inaction. You should consider these risks alongside the costs of disclosing your foreign accounts so you can make an informed decision about what to do.
IRS Initiates a Civil Examination
The IRS can initiate an audit of your return for many reasons. Some returns are selected randomly or by computer programs that estimate the likelihood of errors on your return. Other times, your return is selected for examination because the IRS receives information that indicates you’ve underreported your income or exaggerated your deductions.
Whatever the reason, you’ll become ineligible to make an offshore disclosure once the IRS selects your return for audit, even if the audit is unrelated to your foreign accounts. You’ll then have to deal with an IRS audit and worry about how to handle your unreported foreign accounts.
Tax Penalties
FBAR penalties start at $10,000 per non-willful violation and can go up to 50% of your account balance or $100,000 for willful violations. If you have several years of undisclosed foreign accounts, the penalties can reach up to 100% of your highest aggregate account balance.
You could also face other penalties. A failure to file Form 8938, Statement of Specified Foreign Assets, can result in a $10,000 penalty for the failure to disclose and an additional $10,000 penalty for each 30-day period of non-filing after receiving an IRS notice. The total penalties can reach up to $60,000.
Of course, you can also be charged late payment penalties and interest on any foreign income you failed to report on your tax return.
Criminal Investigations
Criminal investigations aren’t common, but they are a risk you should think about if your failure to file FBARs was due to willful noncompliance. If you aren’t sure, talk to a tax attorney about the issue of willfulness.
If the IRS does begin a criminal investigation, you will no longer be able to make a voluntary disclosure. The New Offshore Disclosure Program is the only option that offers immunity from criminal prosecution.
Contact an offshore disclosure attorney if you want to learn more about the risks of failing to make an offshore disclosure.
The Gartzman Law Firm handles offshore disclosure and other tax resolution cases. Use our contact form to request a consultation with an Atlanta tax resolution attorney.