By Alan Olsen, CPA, MBA (tax)
Greenstein Rogoff Olsen & Co. LLP
Are you among the many Americans who have a bank account(s) in another country? If you are, then you have probably received a letter in the mail recently from the IRS. If you haven’t, then it’s almost assuredly on its way. So keep checking your box. The letter we’re referring to is the one that states that your foreign bank of choice must turn over all account information regarding Americans, including yours. The text may be different depending on the country and the bank, but the message is unmistakable: the IRS plans on getting you information.
Blame it on FATCA
The Foreign Account Tax Compliant Act (FATCA) is methodically making its presence felt in the lives of those who bank overseas. That’s the law that penalizes foreign banks and other financial institutions for not turning over Americans who bank in their countries. Even if your account(s) is very small, you’re better off disclosing what you know instead of trying to hide it. The degree of threat from the IRS in these letters varies. Some direct the recipients to disclose their American status, while others are requesting a person’s tax ID. Some letters require the recipients to verify whether or not they are compliant with the IRS. Still, others simply inform the recipient that their information will be accessed. So what do you do if you aren’t in good standing with the IRS?
The IRS Will Find You
First, you should be aware that in most cases the foreign institutions and banks are complying with the IRS. The penalties are too stiff not to comply. That means you can’t just sit back and hope that your bank will keep your information quiet. Those days appear to be over thanks to FATCA. And if that weren’t enough, the U.S. government also has tens of thousands of other resources they call upon in their war to crack down on overseas tax evaders.
What You Have to Do
Schedule B if you have an overseas bank account. Your work is not done yet, however. In addition, you might also be required to file an IRS Form 8938 with your 1040. Plus, if your foreign accounts total more than $10,000 collectively then you must file a Foreign Bank Account Report (FBAR) by no later than June 30 every year.
The consequences for failing to file a return can be harsh. If your failure is considered tax evasion then you could spend a year in prison and pay a $250,000 fine. If you choose to file a false return then the fine is the same, but you could spend as much as three years behind bars. Meantime, if you skip out on filing an FBAR then it could get even worse. You could be sentenced to as much as 10 years in prison and fines can reach up to $500,000. Those penalties are much worse than 27.5 percent penalty that usually comes with the IRS’s Offshore Voluntary Disclosure Program.
Act Now – The Problem Won’t Go Away
So, if you have received a FATCA letter from the IRS lately then don’t wait around and think the problem will just go away. If you ignore it for too long, then you could be the one going away. If you need help in knowing how to best handle this situation, then give GROCO a call at 1-877-CPA-2006. We can help you move through the process smoothly as we work towards the best possible outcome for your situation. Click here to contact us.