Follow The Rules, And Avoid Audits Or Penalties Over Your Foreign Investments
The Internal Revenue Service (IRS) defines a U.S. person, for tax purposes, as a U.S. citizen, a green card holder or anyone who has resided in the U.S. for at least 31 days out of a year or 183 days over three years before the current tax year, as well as an entity, such as a corporation or trust.
U.S. citizens and all other U.S. persons should understand their responsibility as taxpayers to report their worldwide income. Many U.S. persons maintain undisclosed offshore accounts, but the IRS has been developing increasingly sophisticated ways of discovering these.
Some Penalties For Violation Of Foreign Reporting Requirements
The following information summarizes foreign asset and income reporting requirements, and potential penalties for violations.
U.S. persons with authority over a foreign financial account must report its existence annually to the Department of the Treasury via Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (commonly called FBAR), through FinCEN’s BSA E-Filing System.
Failing to file an FBAR can result in severe penalties that depend in part on whether the IRS deems the omission to have been “willful.” Penalties may include tens to hundreds of thousands of dollars in fines and years in prison. An enduring criminal record is another potential harsh consequence. The penalty for a nonwillful violation may result in a civil penalty as high as $10,000 per occurrence. A willful violation can bring much higher penalties, as much as $100,000 or half of the value of the foreign account balance at the time of each violation.
When penalties go unpaid, a taxpayer may ultimately face criminal charges, including federal violations of tax evasion, filing a false return and failure to file an income tax return. Criminal penalties may be as high as five years in prison and a fine up to $250,000. A conviction for willfully failing to file an FBAR or filing a false FBAR may result in imprisonment up to 10 years and criminal penalties up to $500,000.
Criminal charges may be avoided by taxpayers through the Offshore Voluntary Disclosure Program (OVDP), although civil penalties will likely still apply.
Rely On Our Efficient, Knowledgeable Counsel Regarding Foreign Income Reporting Requirements
Kundra & Associates, P.C., has the information that you need, which can provide the guidance that you seek to avoid violations and penalties associated with taxes and your offshore investment income.