There has been much in the news recently about offshore accounts. A Senate subcommittee has been investigating the role of foreign banks in facilitating tax evasion by U.S. taxpayers. In July, a federal judge agreed to allow the IRS to serve legal papers on Swiss banking giant UBS AG in an expanding investigation into U.S. taxpayers who may have undeclared foreign accounts. The IRS is seeking information on U.S. taxpayers who maintain undeclared accounts at foreign financial institutions, because the IRS believes that some of these U.S. taxpayers may be underreporting income, evading income taxes, or otherwise violating the internal revenue laws of the United States.
The use of foreign bank and financial accounts by U.S. taxpayers is not illegal in and of itself. However, U.S. taxpayers must report their foreign accounts to the U.S. government. Any U.S. citizen or resident, partnership, corporation, estate, or trust having a financial interest in or signature authority or other authority over financial accounts in a foreign country with aggregate balances over $10,000 at any time during a calendar year must report those accounts to the Treasury Department by filing a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”) by June 30 of the succeeding year. No extension is available for filing an FBAR. An individual U.S. taxpayer must also disclose such interest on Schedule B of Form 1040 U.S. Individual Income Tax Return. Penalties may apply if the FBAR is not timely filed or the information supplied is inaccurate or incomplete. A taxpayer who willfully fails to file an FBAR may be subject to civil penalties equal to the greater of $100,000 or 50% of the amount in the account at the time of the violation. An individual who fails to file but is not willful may be subject to civil penalties equal to $10,000 for each negligent violation. Criminal violations are subject to both monetary penalties and imprisonment. Taxpayers who have not filed the required FBARs or properly disclosed their interests on Form 1040 for any prior year should contact us to address the issue.