For those who hold offshore bank accounts, the deadline to disclose said accounts is approaching in four weeks. Anyone who has a foreign bank and financial account abroad that’s balance has exceeded $10,000 anytime over 2011, must file the FBAR (Report of Foreign Bank and Financial Accounts). There are some important rules to filing an FBAR that must be followed in order to avoid any penalties.
First, FBARs must be received by June 30, which means mailing on June 30 is not acceptable. Second, FBARs must be filed by U.S. taxpayers including citizens, residents, and entities that have foreign financial accounts exceeding $10,000 anytime during the year.
So what exactly qualifies as an offshore account? Foreign bank and brokerage accounts are generally included, in addition to offshore mutual funds or pooled investments. However, hedge and private equity funds do not count. Furthermore, an account with a U.S. institution that holds foreign assets does not require filing as long as you cannot access the foreign assets. Although, foreign branches of U.S. institutions are considered offshore accounts and must be documented.
Now, the fun part. There are severe penalties if you decide to forego documenting an account on your FBAR. For each non-willful violation, there is a $10,000 penalty. If it is a willful violation, the penalty can be greater than $100,000 or 50% of the amount in each violation. For every year that is not filed, it is considered a separate violation. If that does not seem so bad, then c0mplete tax evasion could land you in jail. For basic tax evasion, the penalty could be a prison term of up to five years and a fine of up to $250,000. If you file a false return, this could land you three years in prison and a fine of up to $250,000. Simply failing to file a tax return could be a one year prison term and a fine of up to $100,000. If you decide to not file an FBAR, there could be a monetary penalty of up to $500,000 and a prison sentence of up to ten years.
What can we learn from this? FILE YOUR FBARs.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.