Reporting Requirements for Offshore Bank Accounts

FATCA, also known as the Foreign Account Tax Compliance Act, is in vigorous swing and working in full force to mandate foreign bank to disclose all account information pertaining to those owned by United States citizens and residents. In this way, tax evasion will eventually become less likely for those with foreign ties. Along with these efforts come reporting requirements for offshore bank accounts that can be multifaceted and carry harsh penalties if not properly accounted for.

The tax obligations that go along with proper filing can be slightly different for people, depending on where they live, the total value of their assets, and their citizenship. In short, there are those who simply are not aware of the rules, while on the other hand there are those that simply just do not want to abide by them. What remains is that with the enactment of FATCA, you can count on getting in hot water if you do not properly disclose your foreign assets.

For those with global ties, seeking the advice of a tax attorney, who is experienced in offshore banking and these specific tax rules, may be the only way to get through the challenges of proper asset disclosure. In addition, penalties associated with violations in this area can be rather severe and put you in jeopardy for civil as well as criminal charges.

Report of Foreign Bank and Financial Accounts (FBAR)

If you own an offshore bank account or have signature authority with such asset and it exceeds a certain threshold, you are required to file a FBAR, which is due on or before June 30th of each year. An FBAR is filed separately from your tax return and goes directly to the United States Department of Treasury.   According to the IRS you must file an FBAR if:

  • the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  • the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

Aside from the FBAR, if you are a taxpayer with offshore accounts, you must complete Schedule B of your tax returns. There you will need to disclose the existence as well as the location where the assets are held. If the aggregate value of the accounts exceeds specific amounts and you meet certain other requirements such as residence and filing status, then Form 8938, Statement of Foreign Financial Assets, must also be filled out and attached to your return.

Once again, these requirements are the same for those who may have happened to inherit an offshore account, have power of attorney over one, or even those individuals who may have never made a transaction in these foreign accounts.

Because the IRS’s goal is to prevent tax evasion, it has established severe penalties for failing to file the appropriate paperwork. There is a minimum $10,000 penalty if your failure to file was inadvertent; but if you are found guilty of willfully not filing a FBAR, the minimum fine is $100,000 or half the value of the offshore account, whichever is greater.

The tax attorneys at Dallo Law Group have advised numerous clients with offshore bank accounts and their reporting requirements in order to become and stay tax compliant. This particular IRS area can be rather complex especially when assets involve trusts, life insurance, divorce, death, or signatory authority. In addition, the penalties behind tax evasion can bring harsh financial burdens as well as the chance for imprisonment.

Because of the inherent pitfalls associated with foreign accounts, we invite you to get in touch with us at Dallo Law Group to ensure you get everything right from the start.  As always, consultations with attorneys at Dallo Law Group are free of charge and are confidential.