Transparency is the main ingredient of the tax system. The IRS cannot calculate the correct amount of tax a citizen owes to the treasury if they do not have a clear and correct image of the financial standing taxpayer in question. That is why, in addition to voluntary disclosures made by taxpayers in annual tax returns, the IRS has its own system for investigation of concealed assets and wealth. The IRS has access to many government agencies’ databases, which helps them draw a true image of taxpayers’ finances.
The IRS looks into Foreign Bank Accounts of US citizens as these accounts are revenue-generating sources as well as a closet to hide unreported or ill-gotten money. That is why it is necessary for every US person (including citizen, resident, partnership, corporation, trust, and estate, limited liability company) must file a Report of Foreign Bank and Financial Accounts or FBAR under the Bank Secrecy Act. The same information can be submitted on FinCEN Form 114.
US tax entity that must submit FBAR if they have:
a financial interest in at least one financial account in an offshore bank or have signatory or other authority over such accounts.
The aggregate value of foreign accounts at any time during the calendar year reported exceeded $10,000.
It is pertinent to mention that all foreign accounts must be reported, regardless of whether these accounts produced the taxable income.
If a taxpayer fails to submit FBAR for any tax year, the IRS imposes penalties for such foreign accounts. In case of non-willful violation of FinCEN Form 114 can result in a $10,000 penalty per account or just a warning letter. However, in case of willful concealment of foreign accounts, taxpayers may face a penalty of $100,000 per account or 50% of the account’s maximum balance value.
How Can You Avoid FBAR Penalties?
The most effective way of avoiding a penalty is by complying with authorities in time. However, if you fail to do it; the IRS offers various amnesty programs that allow taxpayers to come forward to voluntarily disclose their foreign accounts to limit – or even eliminate – FBAR penalties.
One way to avoid FBAR penalties is delinquent FBAR submissions. Delinquent FBAR Submissions can be availed in you fulfill the following criteria;
Tax related to income from foreign accounts is paid and properly reported, and only FinCEN Form 114 is missing.
Failure to file FBAR was non-willful.
There isn’t any criminal investigation or examination by the IRS against the accounts in question.
If you fulfill the above conditions, you can submit delinquent FBARs without paying any penalties. Before submitting the delinquent FBAR submission, make sure that you have all the information and material to support your claim for this, as this option can lead to the IRS tax audit.
The second option to avoid FBAR penalties is streamlined Compliance Procedures, which offer more relaxed eligibility requirements. You need to certify that you did not willfully fail to file FBAR on time. This will eliminate the FBAR penalties, but you will have to pay a miscellaneous offshore penalty that is 5% of your highest aggregate account balance in foreign accounts.
Another way to save yourself from FBAR penalties is the new Offshore Disclosure Program, which you can get if you don’t qualify for either of the above-mentioned options.
Make sure that you consult your tax attorney before making a final decision. Contact USA Tax Settlement Now!
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Zee Maq is a content writer who specializes in writing business and finance content. She has nine years of experience and loves to provide problem-solving content to help people tackle challenges in their everyday lives.