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