These days, if you happen to be a citizen or resident of the United States and keep an unnamed offshore bank account, better be cautious. Many prosecutions made by the IRS make it clear that the risks have never been more and the possible accountabilities can be overwhelming. The legendary secrecy of Swiss and other tax refuge places turn out not to be as secure as reputed. As it turns out they have named some identities to the IRS and they say more are going to be disclosed.
If you plan to have or already hold an offshore bank account, here is what you need to know to stay out of trouble and to keep your hard earned money safe:
1. You Are Obligated to Declare Worldwide Income
Worldwide income pertains to everything, including interest, wages, foreign earnings, dividends and other income sources.
2. A Tax Return Disclosure is not Sufficient
All U.S. persons with overseas bank accounts must also file yearly a Treasury Department Form, TD F 90-22.1 Report of Foreign Bank and Financial Accounts, which is commonly called an FBAR due every June 30 for the preceding year.
3. There Are Large Tax Fines
If you are not compliant with one or both sets of obligations the penalties are harsh.
4. FBAR Penalties Are More Serious
Penalties for inability to file an FBAR are much more severe. Failure to file an FBAR can mete out a civil fine of $10,000 for every non-willful violation. Should your violation be found willful, the penalty is a whopping greater of $100,000 or 50 percent of the quantity in the account for every violation. Ouch!
5. You Can Land Behind Bars
Filing an inaccurate tax return is a felony, and inability to file is considered a misdemeanor. If convicted of tax evasion, an individual can face a prison term of up to five years and a fine of up to $250,000.
6. Voluntary Admission Is Still an Alternative
If you admit your sins of omission to the IRS and plead to do right, you have just made a “voluntary disclosure,” which is not to be confused with a “Voluntary Disclosure Program,” whose deadline expired Oct. 15, 2009. Consult a Tax Lawyer for this.
7. Another Alternative is a “Quiet Disclosure”
A “quiet” disclosure has to do with a rectification of previous issues without drawing attention to what you are doing and without going to the IRS Criminal Investigation Division. Again, consult a Tax Lawyer.
8. Contradictions and Lack of Consistency Will Backfire On You
Once you decide to be transparent, go all the way or you will get into even bigger trouble.
9. Being Partially Compliant Is Asking For Trouble.
Do not make the mistake of thinking the IRS is so inundated with FBARs and tax returns that you might be allright. The IRS might inquire about the absence of prior FBARs and tax returns revealing an overseas account. If they inquire, it is best to reply through your attorney, and do not lie.
10. Stashing Money Overseas Is Still Legal
So is having an offshore account illegal? Certainly not. You have the right to have cash and investments anywhere in the world as long as you divulge your overseas accounts and comply with all legal obligations. The prudent thing to do is to seek professional counsel and keep your act above board all the way.
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Offshore Bank Accounts: What You Need To Know