In today’s global society, many people have assets and accounts located in places other than the U.S. Unfortunately, some taxpayers in the past would use offshore accounts as a way to hide assets and avoid paying U.S. taxes. The IRS therefore makes efforts to seek out these unreported assets. If discovered, taxpayers face significant penalties and in some cases, jail time.
5 Potential Penalties for Failing to Report Offshore Accounts
What are some of the potential penalties relating to offshore accounts? The following are five examples:
- Penalties for failing to file a Report of Foreign Bank and Financial Accounts with the IRS. All U.S. citizens and residents must annually report their direct or indirect financial interest in a financial account that is maintained with a financial institution located in a foreign country. This rule kicks in if the account has more than $10,000 in it at any time throughout the year. The civil penalty may be the greater of $100,000 or 50% of the total balance of the account per violation. If the violation was not willful but lacked reasonable cause, the penalty is $10,000 per violation.
- Penalties for failing to file Form 8938. This form reports a taxpayer’s interest in foreign financial accounts, securities, and interests in foreign entities. Failing to file this information return results in a $10,000 penalty for each violation. In addition, $10,000 is added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency. There is a maximum of $50,000 per return, however.
- Penalties for failing to file Form 3250, the Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The penalty for failing to file each information return is the greater of $10,000 or 35% of the gross reportable amount, except for returns reporting gifts, where the penalty is 5% of the gift per month.
- Penalties for fraud due to a fraudulent underpayment of tax or failure to file a tax return. Taxpayers who underpay or don’t pay taxes can be fined 75% of the unpaid tax.
- Penalties for failing to file a tax return. This penalty is generally calculated at 5% for each month during which the failure continues, plus another 5% of the balance due.
Fortunately, there are options for resolving your tax problems even if you are not complying with U.S. tax law with regard to your offshore accounts. We can help you find a successful solution. We encourage you to read our client testimonials today to learn more.