Every American taxpayer who has an interest in a foreign bank account or another category of asset situated abroad must take the time to fully understand what the IRS requires of them in terms of disclosure. Recent years have seen an increased focus from the IRS and Department of Justice in enforcement of existing laws and the application of criminal and civil penalties for those not in compliance.

Implementation of the Foreign Account Tax Compliance Act (FATCA) has heightened the government’s ability to detect those still skirting the rules. The good news is that individuals maintaining interests in foreign accounts or assets can turn to the Maryland tax attorneys at Rosenberg Martin Greenberg for experienced help with the documentation and disclosure process, eliminating the confusion and uncertainty that might otherwise create real difficulties during tax season.

Typical tax concerns for those with foreign bank accounts

Anyone with interests in foreign bank accounts and/or assets must report income related thereto on their U.S. tax filings. It is wise for such individuals to familiarize themselves with the steps necessary to achieve compliance with applicable tax laws and regulations. Those with foreign bank accounts are required to utilize Schedule B of Form 1040 in order to disclose this key information, and those with either ownership, signatory authority, or other interests in offshore financial accounts need to file a Report of Foreign Bank and Financial Accounts (FBAR) before June 30 of the relevant year. These tasks must be completed by anyone with accounts totaling $10,000 or more at any single point during a calendar year.

Steering clear of hefty penalties

It is important for impacted taxpayers to understand that substantial civil and criminal penalties can be levied for failure to meet these reporting obligations. Civil sanctions for willfully failing to file the FBAR can grow to the greater of $100,000 or 50% of the balance held in each foreign account for each individual violation. Violations deemed to be non-willful in nature can still result in penalties of up to $10,000 for each occurrence. It is also possible for taxpayers to incur fraud penalty assessments totaling 75% of the tax determined to be outstanding, as well as accuracy penalties upwards of 20%.

The IRS lacks the resources to bring criminal charges against every taxpayer who does not comply with FBAR filing requirements, but that is not to say that the risk of incurring serious penalties does not exist. If noncompliance is established, it is possible for taxpayers to face charges of tax evasion as well as charges of filing false tax returns or FBARs, both of which can carry massive fines and even terms of incarceration.

Clearly, it is in every taxpayer’s interest to fully understand how to achieve compliance with current law concerning foreign bank accounts and other assets.

Disclosure opportunities offered by the IRS

In an effort to avoid severe penalties, individuals with foreign bank accounts and assets have increasingly taken advantage of theOffshore Voluntary Disclosure Program (OVDP) in order to come back into compliance and good standing with the IRS. The program has had multiple iterations in recent years, but the overall goal has been to help taxpayers make necessary disclosures in exchange for a reduction in penalties. Because the terms and conditions of disclosure initiatives can and do change periodically, it is critical for concerned account holders to seek the assistance of a skilled tax professional able to offer case-specific guidance on how best to proceed.

Time is of the essence when it comes to achieving compliance with foreign bank account disclosure rules, as the window for participation in voluntary programs of the IRS is not of unlimited duration. By the time the IRS or Department of Justice discovers a case of noncompliance, it is likely that the taxpayer will be unable to avail themselves of the opportunity to mitigate sanctions. It is incumbent upon anyone with potential liabilities related to foreign accounts to secure professional assistance promptly so that disclosure processes can be successfully navigated.

The tax professionals at Rosenberg Martin Greenberg understand the anxiety that looming tax concerns can cause. We stand prepared to assist with foreign bank account compliance and disclosure matters or any other outstanding concerns our clients may have. To schedule a confidential initial consultation, contact Brandon Mourges at 410.727.6600 or email bmourges@rosenbergmartin.com.