Offshore Voluntary Disclosure
When you are in charge of a foreign bank account in another country, there are some special steps you must take in order to perform voluntary disclosure on these accounts.
American taxpayers are allowed to have accounts in other countries as long as these accounts are reported to the IRS at the end of the tax year.
There are a few special circumstances that come with these accounts. For example, you must be the one who has access to the account or signature authority with a financial gain. The account, or the total of more than one account, needs to reach $10,000 at least once during the year before you must disclose. If your account stays at $5000 all year long, you will not need to report this account to the IRS.
The IRS has made many laws in concerns to taxpayers holding accounts in foreign countries. While you might consider these extreme, the IRS set out the laws to deter dishonest taxpayers evading taxes with the accounts. When you hide the account from the IRS, you risk severe penalties as well as criminal charges.
For those who hold foreign accounts and who do not plan to evade taxes with these accounts, voluntary disclosure is available. With this option, you alert the IRS about your accounts, even if you are delinquent for a few years, and provide the IRS with some information, to get lower fees and penalties. If this is the first year you have a foreign account, voluntary disclosure is the right method to use to prevent issues in the future.
What follows is some very basic information about this situation. This is posted for informational purposes only. By coming to see Andrew Gordon you can avoid the painful results that might attach if you continue a non-compliant status.
Reporting your FBAR
If you have an account in another country that reaches at least $10,000 in a given year, you must file an FBAR in order to avoid further penalties when the IRS finds out about your account. This filing can now be done online and hiring a tax professional can make filing this form easier than ever.
Current FBAR Guidance
- FBAR final regulations: Most taxpayers need to file their FBAR by June 30 of that tax year in order to avoid some issues with the IRS.
- Extensions for filing: In some cases, you are allowed an extension on filing for the FBAR. In most cases, this extension is offered to those individuals who hold signature authority on an account, but who do not hold a financial interest in the account. In most cases, the IRS provides the extension to individuals in this position who need more time collecting their information.
Often, it is easier for individuals to file their FBAR at the same time they file a tax return. Filing in this manner allows the individual to file everything at once. If you do need more time, there is an extension for the FBAR filing for June 30 on the year you plan to file. Talk to your tax advisor to determine which plan for voluntary disclosure option is the best for you.
Who Must File an FBAR
The next question most taxpayers have about filing their FBAR forms is who must file this form. All United States persons must file their FBAR if:
- They have some kind of financial interest or signature authority in one or more account that is in another country outside the United States
- The total amount of all your accounts goes above the amount of $10,000 at any point through the year they are reporting
- Both of these requirements must be met in order to file an FBAR. If you are unsure about whether to file this form or not, talk to your financial advisor ahead of time. It is best to file the FBAR under voluntary disclosure rather than allowing the IRS to find out about an undisclosed account later on.
Exceptions to these rules
The IRS does make some exceptions to the rules listed above for individuals who must file voluntary disclosure. Some of these exceptions include:
- Certain accounts that are owned by spouses jointly
- People from the United States who are included into a consolidated FBAR
- Correspondent accounts
- Foreign accounts that the government owns
- Foreign accounts that are owned by a financial institution that is international
- The owners as well as the beneficiaries of United States IRA as well as the qualified plans for retirement
- Some individuals who have some signature authority with an account but they do not have financial interest in the account.
- Beneficiaries of a trust
- Foreign accounts that are maintained in a banking facility of the military
- Understanding how these rules work can be confusing to most taxpayers. It is best to discuss your role in voluntary disclosure with your tax advisor.
Reporting and Filing Information
Even if your account does not produce any income which the IRS can tax, you may still hold an obligation to report the account. This obligation can sometimes be met simply through answering certain questions on your tax return. When you answer these questions, the tax advisor or the software you choose can help to determine if you must file an FBAR in that year.
You must report and file the FBAR by June 30 of that year. You can file the form online any time between the first of the year and the June deadline to remain in compliance with the law.
It is important that you answer the questions on the tax return correctly. This ensures that you finish voluntary disclosure properly and avoids further investigation from the IRS. The IRS does not take kindly to those who hide foreign accounts overseas in the hopes of evading their taxes. Voluntary disclosure is meant to help individuals stay in compliance with the law without incurring higher fees and penalties.
Filing Your FBAR
The IRS now requires you to file your FBAR online. The IRS will no longer take these forms through the mail or other methods. You can visit the online website to fill out this form and provide the right information to speed up the process.
Filing your form online can make the process easier to handle. Everything can be done in one step and you will know right away if the forms went through. Make sure to fill out your FBAR through voluntary disclosure before June 30 of the tax filing year.
Filing the Form 8938
Voluntary disclosure helps you to pay the taxes you owe and avoid causing more issues with the IRS. In some cases, you may need to also fill out the Form 8938. This form can be filed with your tax return with the help of a tax advisor.
With this form, the IRS can determine which assets you hold overseas and if these assets need to be taxed. Going through the questionnaire on your tax return helps to show whether you need to fill out this form or not to stay in compliance with the law.
Offshore Voluntary Disclosure Program
In some cases, taxpayers did not report their foreign accounts in previous tax years. The failure to report is often due to misunderstanding the tax laws or not realizing the individual needed to report this information. The IRS developed voluntary disclosure to help these individuals to report their accounts rather than keep these hidden.
With voluntary disclosure, the individual can report their foreign accounts and information without getting into trouble with the IRS.
The IRS will ask them some questions and charge taxes on the amount in the accounts if above the $10,000. These taxes are much lower than what the IRS assesses on hidden foreign accounts. You can only claim voluntary disclosure if the IRS is not already investigating your foreign accounts.
The Offshore Voluntary Disclosure Program is extremely technical and requires a trained tax lawyer to navigate its dangerous waters. If you have read the foregoing and realize you’re not in compliance with the Disclosure Requirements, Contact us right now and come in for an appointment. Andrew will create a plan for you, help you file (or amend) previous returns, and help you get compliant and avoid the pain of these laws.
Andrew Gordon can be reached at 312-608-2772. Andrew has offices in Northfield and Chicago and is happy to meet you either place.