Guidance For U.S. Residents With Foreign Interests

Do you have bank accounts or investments outside the U.S. that have not been properly disclosed either on your income tax returns or TD 90.22-1? As a "U.S. person" you may be liable for U.S. taxes on the funds you have sent, earned or were gifted abroad and not accounted for income-wise in the U.S. The Internal Revenue Service (IRS) and U.S. Department of Justice (DOJ) are actively seeking out those taxpayers with unreported funds; whether they be personal or from business accounts. Once discovered, civil and criminal sanctions could be brought regardless of whether such income was reported in the host country.

Penalties For Noncompliance

Repeated and willful failure to report foreign assets is punished more severely. Both maximum civil and criminal penalties are possible. Those who come forward prior to action by the IRS may receive relief. It is often in your best interest to properly disclose and get back into the system. With our help, penalties and taxes may be reduced. If you fail to comply with Report of Foreign Bank and Financial Accounts ("FBAR") rules, you could face criminal and civil penalties, including:

  • If you willfully and knowingly file a false FBAR, you could face civil penalties of up to $100,000 in fines or 50 percent of the amount in the account. You will also face criminal penalties of $10,000 in fines and/or five years in prison.
  • For willful failure to file FBAR or retain account information, you could face up to $100,000 in civil penalties or 50 percent of the amount in the account as well as up to $250,000 and/or up to five years in prison in criminal penalties.
  • If you fail to file FBAR or retain account information in connection with another violation, in addition to civil penalties of $250,000 or up to 50 percent of the amount in the account, you could also face criminal penalties of $500,000 in fines and/or up to 10 years in prison.

Persons who have an interest in a foreign corporation need to also examine their responsibility as to Form 5471. Should this form also go unfilled it carries with it penalties that can be quite prohibitive. It is required to be filed with the taxpayer's Form 1040.

Maximum penalties include:

  • Fine of $10,000 per taxable year of failing to file
  • 90 days after notice of failure, additional $10,000 for every 30-day period of failing to file ($50,000 maximum per failure)
  • Reduce foreign tax credits by 10 percent

To Whom The Requirement Applies

The requirement applies to: any U.S. person with foreign financial account(s) whose aggregate balance exceeds $10,000 during a tax year with either (a) a financial interest, (b) signing authority, or (c) other similar, exercisable authority is required to file a Report of Foreign Bank and Financial Accounts ("FBAR") with the IRS.

A U.S. person includes both citizens and residents of the United States as well as anyone present and/or doing business in the United States, including corporations, partnerships and trusts. Corporations include those whose certificates of incorporation are filed in a state, territory, of the United States as well as parent corporations with foreign subsidiaries holding foreign financial accounts. Bank accounts, securities and securities derivatives accounts and other assets that are located in a foreign country are included. The filing deadline is June 30th of the following calendar year in which the account qualified for the FBAR.

Attorneys Protecting Your Foreign Assets

Kundra & Associates is one of the East Coast's premiere U.S. and international tax law firms. We are a tax law firm dedicated exclusively to tax defense and tax counsel, as well as international matters. We serve clients in Maryland, Virginia, Washington, D.C., across the nation, and across the world.

We work promptly and aggressively, employing our knowledge of U.S. and its relationship with international tax law, proven negotiating skills, an impressive track record of results in tax court, in audits and beyond. Contact a Baltimore international investment lawyer today by calling 301-637-8130.