Offshore Bank Account Reporting
Contrary to current popular belief, it is not illegal to have foreign bank accounts. In fact, there are many legitimate reasons for U.S. taxpayers to maintain foreign accounts.
Recently, however, a spotlight has been placed on U.S. taxpayers who have previously not disclosed their foreign accounts to the government. These taxpayers have been forced to reconsider their decisions not to disclose or report income from those accounts as public attention became focused on the U.S. government’s crackdown on the use of offshore accounts to evade U.S. tax liabilities. In a very public campaign, the Internal Revenue Service and the United States Department of Justice (“DOJ”) have been aggressively pursuing taxpayers they believe are hiding income in offshore bank accounts in an effort to avoid paying income tax.
The most widely publicized example of the government’s efforts on this front is the government’s case against Swiss banking giant UBS. According to DOJ estimates, as many as 52,000 U.S. customers could be using UBS accounts as tax shelters.
Holders of bank accounts at other offshore banks are not necessarily safe either, as reports have surfaced of an expanded inquiry by the IRS into offshore banking services provided to customers of numerous other foreign banks.
Individual taxpayers who file U.S tax returns, and who have any offshore or foreign accounts must report income from these offshore accounts on their income tax returns. They must also declare any offshore or foreign bank accounts over which they have signatory authority, regardless of whether they receive any income from the account.
How Do You Report Offshore Bank Accounts to the IRS?
Let’s say you need to report your offshore bank accounts to the IRS. What do you have to do to meet this obligation and mitigate your risk of facing IRS scrutiny related to your offshore holdings?
Under federal law, U.S. taxpayers who own (or have an interest in or signatory authority over) offshore bank accounts may need to file one or both of the following forms:
- Report of Foreign Bank and Financial Accounts (FBAR) – The obligation to file an FBAR applies to U.S. taxpayers who have $10,000 or more held in offshore bank accounts at any time during the relevant calendar year. Taxpayers must file their FBARs with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), though the IRS is responsible for enforcing noncompliance with the FBAR filing requirement. FBARs are due on April 15, though taxpayers receive an automatic six-month extension.
- IRS Form 8938 – Taxpayers must file IRS Form 8938 if the aggregate value of their offshore accounts and other foreign financial assets exceeds the relevant threshold based on their filing status and country of residence. Form 8938 is due when taxpayers file their annual returns with the IRS.
Since failing to file either of these forms can trigger substantial penalties, it is imperative that U.S. taxpayers take the necessary steps to ensure compliance. If you need help understanding or meeting your federal offshore bank account disclosure obligations, a Washington D.C. FBAR attorney at Thorn Law Group can guide you forward.
What if You Don’t Report Offshore Bank Accounts to the IRS?
The consequences of failing to report offshore bank accounts to the IRS depend on the specific circumstances involved. While most enforcement actions related to offshore bank account disclosure violations are civil in nature, federal prosecutors can pursue criminal charges when warranted.
In civil enforcement actions, taxpayers can face monetary penalties—which can potentially add up to hundreds of thousands of dollars. In criminal enforcement actions, taxpayers can face both fines and federal imprisonment. Even if prosecutors agree not to seek a prison sentence, a criminal conviction for federal tax fraud can still have life-altering implications.
How Do You Fix Delinquent Offshore Bank Account Reporting?
With these risks in mind, what should you do if you have failed to meet your offshore bank account reporting obligations? Even if you don’t report your offshore bank accounts to the IRS, your bank might. Banks have reporting obligations, too, and since a Swiss private bank admitted to helping U.S. taxpayers hide billions of dollars in assets and income in 2023, the IRS has placed increased emphasis on ensuring both taxpayers’ and banks’ reporting compliance.
If you are behind on your offshore bank account reporting obligations, you will want to consult with a Washington D.C. FBAR attorney promptly. While there are two main options in this scenario—submitting a voluntary disclosure or a streamlined filing—each of these options is available in different circumstances. An experienced attorney will be able to help you choose the best path forward based on your specific circumstances, and then your attorney will be able to communicate effectively with the IRS on your behalf.
At Thorn Law Group, we are experienced at representing taxpayers with all issues related to offshore and foreign bank accounts. Whether it is substantiating your compliance in an audit, helping you to determine your reporting responsibilities or assisting you as you come into compliance, a tax lawyer at Thorn Law Group has the national and international tax law experience and is well positioned in Washington, DC to represent your case before the IRS.
This is an area of ongoing activity by the IRS and the Department of Justice. Check out the Blog and News & Events for the latest developments.
If you have any questions, please contact Kevin E. Thorn, Managing Partner at ket@thornlawgroup.com or 202-349-4033 for a confidential consultation.
