What Happens if You Don’t Disclose Offshore Accounts to the IRS?

Owning offshore accounts can trigger federal disclosure obligations, and failing to meet these obligations can trigger steep penalties. As a result, U.S. taxpayers who are behind on their offshore account disclosure violations need to make informed and strategic decisions with their long-term best interests in mind. Learn more from Maryland offshore tax lawyer Kevin E. Thorn, Managing Partner of U.S. International Tax Advisors.

The Obligation to Disclose Offshore Accounts Using Form 8938 and the FBAR

Two federal laws establish offshore account disclosure obligations for U.S. taxpayers: the Foreign Account Tax Compliance Act (FATCA) and the Bank Secrecy Act (BSA). Under these statutes, taxpayers’ basic disclosure obligations are as follows:

• Disclosing “Foreign Financial Assets” Under FATCA – Taxpayers living in Maryland must disclose their offshore accounts and other “foreign financial assets” under FATCA if the aggregate value of these assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year. These thresholds double for married taxpayers filing jointly and quadruple for taxpayers living overseas. Making a FATCA disclosure involves filing Form 8938 with the IRS
• Disclosing Offshore Accounts Using Under the BSA – All taxpayers must disclose their offshore accounts under the BSA if the aggregate value of their offshore accounts exceeds $10,000 at any time during the calendar year. Making a BSA disclosure involves filing a Report of Foreign Bank and Financial Accounts (FBAR) with FinCEN.
• Both of These are “All or Nothing” Disclosure Requirements – Under FATCA and the BSA, if a taxpayer is required to file a disclosure, the taxpayer must disclose all of the taxpayer’s offshore accounts. This is true even if certain accounts don’t contribute to exceeding an applicable threshold (i.e., if a taxpayer has offshore accounts with balances of $10,000 and $1,000, the taxpayer must report both accounts on an FBAR).

The Risks of Offshore Account Disclosure Violations

Failure to comply with the offshore account disclosure obligations under FATCA or the BSA can trigger steep penalties. These penalties can be either civil or criminal in nature, and they can continue to accumulate in the event of ongoing noncompliance. As a result, taxpayers who have not filed Form 8938 or an FBAR (if required) should act quickly to mitigate their liability going forward.

Remedying Offshore Account Disclosure Violations: IRS Voluntary Disclosure and Streamlined Filing

Depending on the circumstances involved, remedying an offshore account disclosure violation may involve submitting either a voluntary disclosure or a streamlined filing to the IRS. Voluntary disclosures are used to resolve potential criminal liability arising out of “willful” violations, while streamlined filings allow taxpayers to mitigate their liability for civil penalties.

Deciding which option to pursue isn’t necessarily straightforward, and noncompliant taxpayers need to ensure that they make an informed decision based on an accurate understanding of their potential exposure. If you have concerns about facing IRS scrutiny related to your offshore holdings, it will be important for you to consult with an experienced Maryland offshore tax lawyer as soon as possible.

Request a Call with Maryland Offshore Tax Lawyer Kevin E. Thorn

To request a consultation with Maryland offshore tax lawyer Kevin E. Thorn, Managing Partner of U.S. International Tax Advisors, call us at 240-235-5096 or contact us online. We will arrange for you to speak with Mr. Thorn in confidence as soon as possible.