Foreign nationals who reside in the United States and those who are here working on an H1-B visa are required to report all offshore bank and investment accounts, assets and income to the IRS and to come into compliance with FBAR reporting. We have heard many clients ask: “None of my friends are worried about FBARs so why should I be?
The real answer is: “Your friends should not only be worried about FBAR compliance, but taking action.”
The penalty for non-compliance is staggering. The IRS will penalize you 50% of the highest cumulative balance of all your offshore accounts, or $100,000 per incidence (failure to report an account, investment, asset, etc.). It doesn’t matter how much is in those accounts today. In addition, the failure to report those accounts and income is considered “tax evasion” and is a criminal offense punishable by jail.
For example, foreign nationals who bring $500,000 into the US to invest in business opportunities are provided with a visa and take up residency. Initially that $500,000 (or more) was located in an offshore bank account. It is not unusual for these clients to have multiple offshore accounts and substantial assets. The failure to report these assets and offshore accounts to the IRS exposes you to great risk. In this example, the $500,000 has already been moved to the United States and used to purchase a business. The money is no longer in the offshore account. Yet, the IRS could penalize this individual for the failure to report that account on tax returns and associated FBAR submissions, and assess a fine of 50% or $250,000 – even though the account balance today is zero. If the individual in this example had $2 million accumulated between all of their offshore assets and accounts in that time frame, the penalty would be $1 million, regardless of the present balance.
This is why it is so important to take action and protect your assets. “If none of my friends are worried about FBARS why should I be?” They should be, and this is no excuse for you not to take action to protect yourself and come into compliance with the IRS.
The streamlined domestic offshore procedures allow those who have simply been unaware of their reporting to claim “non-willful” conduct and come into compliance with IRS FBAR reporting while paying 5% or less in penalties.
For those with more substantial holdings, the IRS Offshore Voluntary Disclosure Program or OVDP will provide more extensive protections while avoiding the risk of a “willful versus non-willful conduct” conversation with the IRS.
These are complex decisions, and the forms are quite sophisticated. Which program is best for your unique circumstances? Contact the experienced international tax and IRS attorneys at Allen Barron for a free consultation at 866-631-3470.