1. Report all income worldwide
According to the Inland Revenue code, you must declare all your income derived from any country worldwide to the IRS. As I said above, this applies even if you declare and pay taxes to your host country where you work. In addition, if you have a foreign bank or financial account in your name, you must check “yes” (on Schedule B).
2. Submit Foreign Bank and Financial Account Report
If you have in excess of $10,000 in aggregate in your foreign bank accounts at any time during the calendar year, you also need to submit a Foreign Bank and Financial Account Report (FBAR). Every year, the deadline to submit your FBAR is June 30. Unlike filing a tax return, you cannot apply for an extension to the June 30 deadline for FBAR submission.
Failure to comply with this rule will result in penalties. If the failure is non-willful, you could be fined up to $10,000 but if it is willful your penalty can be up to $100,000 or 50% of your account balances whichever is higher. In addition, you may also face criminal charges. By the way, each year you fail to comply is considered a separate violation.
3. File IRS Form 8938
Along with your tax return, you may also be required to file IRS Form 8938 Statement of Specified Foreign Financial Assets to declare your foreign assets and accounts if you have at least $50,000 on the last day of the year or $75,000 at any time.
Failure to comply also draws steep penalties. You could be fined up to $10,000 for failing to disclose and in addition, another $10,000 for each 30 days of non-filing after receiving an IRS notice of a failure to disclose, up to a maximum penalty of $60,000. Again, criminal penalties may apply.
4. Jail term is likely
If you are convicted of tax evasion, you could likely face a stint in jail. If you file a false tax return, your punishment could be 3 years in jail and a fine of up to $250,000. On the other hand, if you fail to file a tax return, your punishment could be 1 year in jail and a fine of up to $100,000.
5. Voluntary disclosure is encouraged
The IRS has had 3 voluntary disclosure initiatives over the past 2 years or so. You do not have to wait for such an occasion to declare your overseas assets if you have not done so. If you voluntarily disclose your assets, you will be fined and be required to pay back taxes but not be criminally prosecuted.
6. Quiet Disclosures are not encouraged
A quiet disclosure is correcting your past tax submissions and FBARs without disclosing what you have been doing. This is not enough to get you off the hook with the IRS.
7. When in doubt, disclose
The general rule is when you are unsure whether some income or asset is required to be disclosed, you should disclose it.