With potential tax penalties and civil or criminal prosecution for failure to report accounts at foreign financial institutions, offshore account holders must be wary. The dangers could be even worse when the offshore account is at a “bad bank” – a bank designated by the IRS as helping its account holders to evade U.S. taxes.

U.S. taxpayers with foreign bank accounts must be aware of IRS reporting requirements for these “offshore” accounts. For offshore bank accounts or other foreign financial accounts, the taxpayer will likely need to file a Foreign Bank Account Report (FBAR). Please note that the penalties for failing to file an accurate FBAR can be extremely steep.

Offshore banking – setting up a bank account in a foreign country – can often be a good idea, especially in countries that have favorable banking regulations. Offshore banking can also present risks. In addition, there are IRS reporting requirements that, if not attended to, can cause a taxpayer civil and even criminal liability.