Ben Todd | Jun 2, 2017 | 1
10 Things You Should Know Before Opening An Offshore Bank Account
Opening an offshore account is not just for the super rich. There are plenty of legitimate, legal, honest and good reasons why you should open an offshore bank account yourself. Before you open your account, read this article about the ten things you should know before opening an offshore account.
Throughout this article, you will see the acronym “FBAR” used quite a bit. It is a Report of Foreign Bank and Financial Accounts (FBAR). You will need to file an FBAR when “…a U.S. person has a financial interest in, or signature authority over, one or more foreign financial accounts with an aggregate value greater than $10,000 at any time during the reporting period (calendar year). If a report is required, certain records must also be kept.” (IRS 188.8.131.52 (11-06-2015))
1 – Foreign Account Inconsistencies Is A Big Red Flag
When you fill out your tax return and you tick the box that says you have foreign accounts, you are telling the IRS that you have an FBAR filing obligation.
Amending tax returns to report your worldwide income is fine, but some people choose not to file their delinquent FBARs. Not filing is probably a bad idea, especially since the government is coming down hard on tax dodgers at the moment. If you have inconsistencies from one tax return to another, or between your old FBARs and old tax returns, then it is going to make the IRS very suspicious.
2 – Go As Far Back Into The Past As Is Required
Some people figure that they are safe if they start listing their foreign accounts on their FBARs and tax returns right now and pretend as if the past doesn’t matter, but it is very risky. It is a form of prospective compliance that the IRS takes a dim view of. If they start asking about the foreign accounts you have had over the last few years (six to ten within reason), then you need to respond through your attorney and avoid lying while you do.
3 – Do Not Close Your Accounts If You Are Cleaning Up Past Tax Returns
If you a cleaning up your past tax returns and your past FBAR’s, you may consider closing your foreign accounts to simplify things a little, but it will make no difference because you are still obligated to file correct and accurate FBARs and returns. Just because a foreign account no longer exists doesn’t mean that your account history doesn’t exist, or that you are off the hook with regards to it. Your account details and history are not erased from recent memory, or from the foreign bank’s account files. If you are having a problem with a foreign account and if your use of it is causing you tax problems or complications, then it makes sense to tie it off and put a halt to the problem. But, if you are having lack of compliance troubles, then closing an account may make your problem worse if the authorities believe you did it to try to hide your offshore activities.
4 – You May Consider Voluntary Disclosure
Voluntary disclosure is where you admit to the IRS that you have offshore accounts that you have not declared. If you have had your account since the year 2009, they may avoid criminal prosecution. If you have had your account any time before 2009, you will probably be facing criminal prosecution. There is a chance you may file a quiet disclosure by simply amending your previous tax and FBAR documents, but you will need your tax lawyer and attorney by your side for if anything goes wrong.
If you are going to step forwards and voluntarily disclose because you have not declared your offshore accounts, you should do it with your tax lawyer and approach the IRS Criminal Investigation Division with your hands up. The cost of making a voluntary disclosure may be rather expensive, but the penalty for voluntary disclosure is often less than if you were investigated by the IRS.
5 – There Is Such A Thing As Quiet Disclosure
If you have failed to report your offshore accounts, your offshore earnings or your foreign business interests, then you can give a quiet disclosure, which doesn’t involve dealing with the IRS Criminal Investigation Division. You have to quietly disclose your past problems and fix them, plus you will have to file any delinquent FBARs. You will then have to pay any owed taxes in order to have the matter dropped. Do this without prompting, which means without being caught in the first place, and your quiet disclosure will help you avoid jail. It is not the same as walking into the IRS and saying you have been naughty, you are simply amending a few mistakes you made in previous returns.
If you have been earning money in other countries and you have paid tax, then you may not owe as much back taxes as you think. Quiet disclosure means coming clean of your own free will. If you have been paying tax for your foreign accounts, investments and business dealings, but you have not been filing FBARs, then you will need a good excuse. Some people say they thought their accountants were fully compliant, and others say they simply never heard of FBARs. Whatever your reason, try to make it a good one because you will probably not go to jail, but you may be fined or penalized in some way.
6 – FBAR Penalties May Be Bigger Than Tax Return Penalties
The FBAR authorities are not as ruthless or diligent as the IRS department that takes care of your tax return. However, the FBAR authorities have bigger civil penalties. For example, every time you make a non-willful violation, you are charged a civil penalty of $10,000. If you make the violation willfully (on purpose), you are charged either 50% of what is in each account, or $100,000, whichever is the biggest number. That is a lot of money to take away from you just because you didn’t file a form. You may stand a better chance of defending yourself against a willful violation if you have previously declared your foreign accounts on your tax returns.
7 – Tax Penalties, Prison And Civil Fraud
Let us assume that the FBAR doesn’t exist for a minute and consider your tax return only. If you lie on your tax return, including a lie of omission, then you are guilty of perjury at the very least. If you do not disclose your foreign accounts, then perjury also becomes tax evasion and civil fraud. There are a slew of penalties for tax evasion, plus the statute of limitations doesn’t expire on civil tax fraud, which means the IRS can come after you years after the violation occurs.
8 – Your Worldwide Income Must Be Reported
As you can tell by reading this article, you have to submit your US income tax return and declare the money you are making and storing abroad. However, some people seem to think they can get around it–but they cannot.
You cannot hide money in foreign banks anymore because they are all obligated to work with the IRS in the US, so avoiding tax with offshore banks is now impossible. All of your foreign earnings must be declared, which includes interest, wages, sales, dividends and so forth. You may feel that the amount you have earned is not enough to warrant declaration, but the IRS will often disagree. Even if you only earn small amounts, and even if you are paying all applicable offshore taxes, you need to declare your accounts and earnings.
The reason is so that you may be as transparent and cooperative as possible. Even if you have small amounts in your offshore accounts, or your earnings are small, once the IRS finds out you have the accounts, they will assume you have been funneling large amounts through them.
9 – An FBAR Is Needed For Total Compliance
If your total foreign investments/money come to more than $10,000, you need to fill out and an FBAR. It is another layer of paperwork that helps protect the country against people that use offshore accounts to make money and hide money. It helps plug some of the loopholes in the current tax laws because it requires a declaration of all your offshore money/income as one. For example, if you have $2000 in six different banks in six different countries, then an FBAR is required.
10 – Go Straight To Jail
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With just the IRS, you are looking at a fine of up to $250,000 and around five years in jail. With the FBAR authorities, you are looking at fines of around $10,000, penalties of around $100,000 and/or half the value of your offshore account. In addition, you can face multiple counts for multiple violations, which means your prison sentences and fines may quickly accumulate. When a government needs money, such as when it is 20 trillion dollars in debt, it can cut government bureaucracy (but Democrats whine), they can increase taxes (but Republicans whine), they can start a war on drugs, or they can start a war on tax evaders. Currently, there is a war on tax evaders going on and it is making the government a lot of money. To avoid being stung, you need to do all you can to be as transparent and compliant as possible.