Last year, the IRS caused a storm by aggressively pursuing tax evaders who had been taking advantage of somewhat little enforced US laws and lax foreign-government rules and regulations. As a result, the laws and regulations governing such tax evasion practices were interpreted broadly to ensnare alleged tax evaders. However, now, the IRS seems to have sought to calm the waters a little bit.
Foreign Bank Account Reports have been on the books for a long time. Nonetheless, only recently the IRS stepped up efforts to confront alleged foreign account-tax evaders.
Who Should Generally File a Report with the IRS?
- US Taxpayers with Foreign Accounts in Excess of $10,000: Generally, any US taxpayer whose total amounts in foreign accounts exceed $10,000 MUST file with the IRS.
- US Taxpayers with a Financial Interest in a Foreign Account: Any US taxpayer with a financial interest in a foreign bank, brokerage account, annuity, or cash-value insurance policy MUST file with the IRS.
- US Taxpayers with Investments in Offshore Mutual Funds: Any US taxpayer who invests in offshore mutual funds MUST file with the IRS.
- US Taxpayers Controlling or Owning Foreign Corporations: Any US taxpayer who owns or controls foreign corporations WITH foreign financial accounts MUST file with the IRS.
- Exemptions: There are SOME exemptions for non-income-producing assets such as art or land.
- CAVEAT: Still, there remains many traps for the unwary. You are HIGHLY ADVISED to seek competent legal counsel.
THE IRS EASING ON SOME FOREIGN ACCOUNT HOLDERS
At least for 2010, the Treasury issued guidelines that let SOME foreign account holders off the hook. Nonetheless, many people could be still in danger of not filing.
GENERALLY Not Required
- Non-US Citizen or Resident: Non-US Citizens or Residents are GENERALLY not required to file.
- US Taxpayers with Signatory Authority But No Financial Interest: A US taxpayer who has signatory authority but no financial interest in a foreign account GENERALLY not required to file.
- Hedge-Fund and Private Equity Investors
- CAVEAT: This is extremely important to note the definition and scope of each of theses generalizations are still not very clear. As such, YOU ARE HIGHLY ADVISED TO SEEK COMPETENT LEGAL COUNSEL.
SEVERE PENALTIES FOR NOT FILING
- Willful Failure to File: The penalties for willful failure are among the harshest. In fact, the penalties could be $100,000 OR half of the value of the account PER YEAR.
- Non-Willful Failure to File: The penalties could be $10,000 PER YEAR. Such failures to file are not related to the amount of the infraction.