U.S. law allows American residents to earn income in a foreign country, as well as hold various financial accounts outside of its borders. However, individuals and businesses are still required to report that income and pay any relevant tax on it and disclose certain financial accounts held in foreign countries. Federal investigators from the Internal Revenue Service (IRS) have the ability to question the failure to report financial assets in offshore accounts. An experienced tax lawyer could assist you in identifying your tax vulnerabilities and finding solutions to safely come into compliance.
These situations are sensitive and will usually require the taxpayer to pay a penalty, which is why it is in your best interest to do so with the aid of a Rockville offshore disclosure lawyer.
No matter how the host country treats the money in these accounts, the United States does not exempt these financial assets from income tax requirements. This means there are strict reporting requirements with the IRS. A taxpayer can meet these requirements by electronically filing what is known as an IRS Report of Foreign Bank Account (FBAR) form. This form is used to report any financial accounts in the aggregate that are valued at more than $10,000 (at any point in the year) that are held in another country. A taxpayer may also need to file a FATCA form (which can be found here) if they meet certain financial thresholds. Although these documents cover a lot of the same ground, FBARs are sent to the Treasury Department, while FATCA goes directly to the IRS.
A taxpayer who fails to file one of the required forms will be assessed a penalty of $10,000 per form, per year. (The forms most commonly required for these situations are Forms 8938, 5471, 5472, and 926, as well as 3520 and 3520-A.) A criminal investigation is possible if the IRS determines that this failure to file was willful in nature. When someone does not meet their reporting requirements, a Rockville foreign income disclosure lawyer might be able to address these reporting issues in a way that satisfies the IRS and avoids the opening of a criminal investigation.
Taxpayers who did not file their international reporting forms and pay the related tax on their foreign income have a number of pathways to disclose these funds and come into compliance with the IRS. Two of the primary options are the streamlined procedures, which require the taxpayer to explain why they were non-willful in their non-filing of FBAR(s). They must file amended tax returns for the previous three years and FBARs for the previous six years and will be assessed an offshore penalty of 5% of the highest aggregate value of the accounts in question. The Streamlined Domestic Offshore Procedure is for taxpayers who resident within the U.S., while the Streamlined Foreign Offshore Procedures is for taxpayers who live outside the U.S. However, that second group does not have to pay the 5% penalty.
If a taxpayer reported their worldwide income but forgot to include their FBAR, they could take advantage of the Delinquent FBAR Submission Procedure. This program allows them to file late without being hit with a penalty but only if they follow the procedure exactly. If a taxpayer is ineligible for any of these programs, it is also possible to engage in a Quiet Disclosure, which could bypass any penalties but might also be used against them if the government finds out.
Because of the risks involved in these disclosure programs, an individual or business is highly encouraged to first speak with an offshore disclosure attorney in Rockville about which option is in their best interest.
If you earn income outside of the U.S. and/or own financial accounts overseas, you have extra obligations when it comes to your taxes. You must make sure to file all of the correct forms on time or else you might be looking at penalties. If you find that you are not in compliance with the IRS on these matters, we recommend that you set up a consultation with a Rockville offshore disclosure lawyer as soon as you can. It is possible to safely correct these mistakes without triggering an investigation and we can work with you to determine your next move.