the year total less than the equivalent of $ 10,000 U. S., you do not need to check the box on your tax return or file an FBAR, but you must still report any account earnings on your tax return.
3. There Are Big Tax Penalties
If you don ' t comply with one or both sets of obligations the penalties are severe. You sign tax returns under penalties of perjury, so if you fail to report your worldwide income--or even fail to check the box disclosing you have a foreign account--it can be considered tax evasion and fraud. The statute of limitations on such criminal acts is six years. Plus, the statute of limitations never expires on civil tax fraud, so the IRS can pursue you 10 or 20 years later for back taxes, interest and penalties. If you failed to report income, your civil liability to the IRS can include a 20 % accuracy-related penalty or a 75 % civil fraud penalty.
4. FBAR Penalties Are Even Bigger
The penalties for failure to file an FBAR are even worse. Failing to file an FBAR can carry a civil penalty of $ 10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $ 100,000 or 50 percent of the amount in the account for each violation--and each year you didn ' t file is a separate violation.
5. You Can Go To Jail
Filing a false tax return is a felony, while failing to file is only a misdemeanor--think of it as the Wesley Snipes rule. A person convicted of tax evasion can face a prison term of up to five years and a fine of up to $ 250,000. Filing a false return can mean up to three years in prison and a fine of up to $ 250,000. A person who fails to file a tax return can face up to one year of prison and a fine of up to $ 100,000. Failing to file FBARs can be criminal too, and the penalties are even more severe. The monetary penalties can be up to $ 500,000 and the potential prison term is up to ten years.
6. Voluntary Disclosure Is Still an Option
If you admit your failures to the IRS and say you want to make it right, you ' ve made a " voluntary disclosure." Don ' t confuse this with the " Voluntary Disclosure Program," which had an Oct. 15, 2009 deadline. It is too late for that prepackaged program, but it ' s not too late to make an individual " voluntary disclosure." A voluntary disclosure must be truthful, timely and complete. You must: cooperate with the IRS in determining your correct tax liability; and make good faith arrangements with the IRS to pay the tax, interest and penalties determined by the IRS.
While a voluntary disclosure does not guarantee immunity from prosecution, the government generally will not prosecute you if you come forward voluntarily before you ' re under investigation.( If the IRS is already investigating you, all bets are off.) Note, however, that in publicizing the IRS Voluntary Disclosure Program in 2009, the IRS made clear it would show no mercy to those with undisclosed offshore accounts who didn ' t turn themselves in by the Oct. 15, 2009 deadline. For that reason, some tax lawyers fear that the traditional advantage of a voluntary disclosure--no criminal prosecution--is less certain.
Stepping forward should be done through a tax lawyer to the IRS Criminal Investigation Division. Usually the case will be referred to the civil branch of the IRS where all the filings, amending and penalty calculations are done. You then must file amended income tax returns for past years and delinquent FBARs. There ' s no bright line for how far back you ' ll have to go, as situations vary. However, the Oct. 15, 2009 program required six years of amended tax returns and FBARs, so that ' s a good benchmark. The total cost of making a voluntary disclosure is also hard to assess, but it can be more than the amount in your foreign account.
7. " Quiet Disclosure " Is Also an Option
Some practitioners consider a voluntary disclosure " noisy," since it involves going to the IRS Criminal Investigation Division. A " quiet " disclosure involves a correction of past problems without drawing