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What Penalties Are Associated with IRS Foreign Account Reporting Rules?

What obligations are imposed by the IRS on those who hold foreign accounts or other types of foreign assets? The Maryland tax lawyers at Rosenberg Martin Greenberg are committed to helping clients navigate the complexities of foreign account reporting rules and avoid potentially costly penalties.

Reporting of foreign bank accounts and other assets

American taxpayers who hold either a financial interest or signatory authority over any foreign bank, brokerage or mutual fund account, a trust account or any other sort of foreign financial account or non-monetary asset that has a total value in excess of $10,000 at any point during the prior calendar year are required to file FinCen Report 114 (Report of Foreign Bank and Financial Accounts) with the U.S. Department of Treasury. The obligation to report also encompasses assets such as foreign business investments, ownership of rental property in foreign lands, loans made to foreign parties and more.

Taxpayers are not relieved of this duty just because such an account had an average value of under $10,000 over the course of the year, or the entire account value is withdrawn before year’s end. These technicalities have caused a large number of individuals to erroneously believe that they did not need to make this most important filing.

Severe sanctions for failure to disclose foreign accounts

Because the United States government has increased its efforts in detecting and pursuing those who participate in abusive or evasive offshore transactions, very strong penalties are imposed on taxpayers who do not make the disclosures covered by FinCen Report 114. Those who do not file as required, but were not willful in their omission are subject to a minimum fine of $12,459. Those who are determined by the government to have willfully disregarded the duty to disclose will face a minimum penalty of $124,588 or 50% of the account in question, whichever amount is greater. Clearly, it is in every affected taxpayer’s interest to maintain full compliance with these regulations.

Important tax filing and compliance details

In the past, these disclosures were due to the Treasury Department by June 30, but for 2017, the deadline has been moved up to April 15, though filing extensions to October 15 will now be automatically granted. Filing can be completed via FinCEN’s electronic system, and submissions must contain the names and addresses of every financial institution in which relevant assets are held, the account numbers and the highest amount held in each during the course of the year.

Taxpayers should take note that these disclosures are not sent along with tax returns, but are transmitted separately to the Department of the Treasury.

Taxpayers who are concerned about prior noncompliance with foreign account reporting rules may wish to explore the Offshore Voluntary Disclosure Program and/or the Streamlined compliance programs offered by the IRS. These opportunities allow those with foreign assets to regain good standing by filing amended or delinquent documentation and resolve penalty amounts assessed as a result of any previous failure to disclose such interests and accounts.

The Baltimore-based tax professionals at Rosenberg Martin Greenberg stand ready to provide the advice and strategies clients seek when facing any tax compliance concern.

Tax compliance, controversy and planning across the Mid-Atlantic region

No taxpayer relishes the prospect of becoming entangled in an intimidating non-compliance or IRS collections scenario. Fortunately, the seasoned tax practitioners at Rosenberg Martin Greenberg are ready and willing to bring years of negotiation, planning and resolution experience to bear on behalf of clients in Baltimore, Washington D.C. and beyond. To schedule your confidential consultation, we invite you to contact us today.

Additional foreign bank account reporting resources

  1. Internal Revenue Service, Report of Foreign Bank and Financial Accounts (FBAR), https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
  2. Internal Revenue Service, Summary of FATCA Reporting for U.S. Taxpayers, https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-u-s-taxpayers
  3. Internal Revenue Service, 2012 Offshore Voluntary Disclosure Program, https://www.irs.gov/uac/2012-offshore-voluntary-disclosure-program
  4. Internal Revenue Service, Streamlined Filing Compliance Procedures, https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures

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Rosenberg Martin Greenberg

705 Melvin Avenue Annapolis, MD 21401
Phone: 410-727-6600
Map & Directions