Taxpayers with funds in offshore accounts may wish to repatriate their funds by bringing them back to the U.S. and avoid any future Foreign Bank Account Report (FBAR) compliance issues. While this may prevent any future offshore bank account problems, it does not stop the IRS from discovering any past delinquent FBARs and assessing severe civil and/or criminal penalties.
A transfer of funds from overseas into a domestic account can easily be traced, and may raise suspicion that will cause an investigation into whether the funds have been properly reported on the taxpayer’s return, and whether all necessary FBARs have been filed. An attempt to repatriate funds could also be seen as evidence of willful FBAR non-compliance, if the accounts were not properly reported in previous tax years. Rather than attempting to bring funds back to the U.S. and hoping no one will notice, taxpayers should use one of the delinquent FBAR submission procedures to mitigate the risk of substantial penalties and possible criminal prosecution.
Do You Have Delinquent FBARs?
Taxpayers (referred to as U.S. persons) who have a financial interest or signature authority over foreign financial accounts with an aggregate value that exceeded $10,000 at any point during the tax year must file an FBAR. This means that even if your foreign financial account was open for one day during the tax year, you have an FBAR filing requirement if the value of the accounts exceeded the filing threshold.
The IRS can go back six tax years when assessing penalties for FBAR non-compliance. Just because you bring your funds back to the U.S., it does not mean that the IRS will not come after you for a failure to file FBARs in previous tax years. In fact, as mentioned previously, the transfer of a large amount of funds from overseas may arouse suspicion that could lead to a discovery of your non-compliance.
Better Options for Disclosing Offshore Accounts
Taxpayers with delinquent FBARs should consult with a tax litigation attorney to develop a proper strategy for disclosure of their offshore accounts. With penalties of $12,459 per violation for non-willful violations and the greater of $124,588 or 50 percent of the balance in the account for willful violations, the risks of non-compliance are too high to leave to chance. There are several procedures available for coming clean about delinquent FBARs, including the Offshore Voluntary Disclosure Program, the Streamlined Filing Compliance Procedures, and submitting delinquent FBARs with a reasonable cause statement.
An experienced tax attorney can help you choose the best disclosure option, and avoid the risks associated with FBAR non-compliance. For more information, download our free special report, Nine Questions You Should Be Asking About the IRS Streamlined Filing Compliance Procedure for Unreported Foreign Accounts.