In my video blog, I briefly discuss what not to do when considering foreign asset disclosure options. Ducking for cover or pretending that your undeclared foreign accounts will not be discovered is analogous to an Ostrich who hides it head. Information Exchange Agreements between the U.S. and other governments are the rule not the exception today.
Foreign financial institutions are screening their account records for customers who have a U.S. connection and then requesting evidence of compliance with U.S. laws. Even after receipt of requested documents, many foreign financial institutions are asking customers with U.S. residence to find another institution. New IRS Form 8938 give the IRS greater information and enforcement powers. Now, unless taxpayers and (in some cases) their tax return preparers are willing to commit multiple acts of non-compliance the IRS will have a road map to not only foreign financial accounts, but to all sorts of foreign held assets (specified foreign financial assets). The new disclosure will and does have important income, and estate and gift tax ramifications.
Ostrich like actions will require greater and greater risk taking on the part of taxpayers and when and if such hiding fails, the results will likely be catastrophic, meaning possible criminal charges, civil fraud and evasion claims, 40% unreported income penalties, and a potential 50% per year willfulness penalty for failure to file a Report of Foreign Bank Account (FBAR). A better approach is to come forward under the Offshore Voluntary Disclosure Initiative (2012) and deal with unfiled FBAR’s and to truthfull disclose specified foreign financial assets on Form 8938. Then it would be wise to consider estate and gift planning alternative for foreign held assets. Compliance may be the best option and only sensible strategy. Remember, Ostrich is a bird, not a life style.
Tags: Internation asset disclosure; Form 8938; FBAR; willfulness; specified foreign financial assets; fraud; evasion; civil penalty;