Should You Disclose Foreign Accounts to the IRS?

Perhaps you have an overseas bank account containing more than $10,000. Maybe you inherited it, or used it to conceal assets due to a conflict with your other half or business colleague, or simply opened it for no particular reason.

Despite your motives, having an overseas account can feel a bit like a weight on your shoulders, holding you down and seemingly becoming more and more dangerous.

While considering your options, you may rationalize keeping it undocumented, noting that the account barely throws off any earnings and you don’t even receive bank statements. Moreover, with the fees that the overseas bank charges, it likely loses value over time. You may feel justified in keeping your foreign accounts undisclosed.

When it’s time to file your taxes, is it important to check the box on Schedule B admitting that you indeed have a foreign account? Do you need to report all of the income from your offshore assets and accounts? Should you file Form 8938? Should you file a Report of Foreign Bank and Financial Accounts (FBAR), Treasury Form TD F 90-22.1? The answer is absolutely.

But if you have not been honest on prior tax returns, how can you do so now? If you did not divulge the accounts or assets on your tax returns and owe back taxes, you are faced with a troublesome choice. Keeping your bank accounts concealed indeterminately is risky and unrealistic.

When you file your first FBAR, and the IRS asks about your past, do not lie. The best thing to do is to hire a tax professional and make sure you are properly represented in order to achieve the best possible outcome.

Can’t you simply close the account and not claim it at all? Or maybe you could donate the funds charity abroad without consequence? These are typical misconceptions, but they rarely exonerate the taxpayer.

Even if you close your offshore accounts, you continue to have income and reporting requirements from past years. The requirement that you expose your accounts will not go away for a minimum of six years, and that’s plenty of time for your past mistakes to catch up with you. Furthermore, disposing of your accounts may be seen as evidence against you proving that you knowingly evaded the IRS. This incrimination carries much harsher penalties (jail, large fines, etc.) than simply filing a voluntary disclosure.

The professional tax experts at JG Tax Group have a wealth of knowledge and experience that can help you if you are facing any problems with the IRS. For questions and all inquiries, please feel free to contact us today.