For taxpayers with undisclosed foreign financial accounts, especially those holding significant income producing assets offshore, a common (and dangerously misguided) question is: “Can I just close my foreign account before the IRS finds out?” While this may seem like a simple fix, the reality is that closing a foreign account does not eliminate your reporting obligations, reduce your exposure, or erase past noncompliance. In fact, closing the account can often worsen your legal position if done improperly or with the intent to conceal taxable offshore assets.
At the Tax Law Offices of David W. Klasing, our dual-licensed Tax Attorneys and CPAs have seen firsthand how the IRS treats the closure or transfer of foreign financial accounts that were never properly reported. In many cases, closing an unreported foreign bank account—especially after learning about FBAR, FATCA, or foreign income reporting obligations—can be viewed as evidence of willful tax evasion. The IRS may interpret such actions as part of a deliberate attempt to conceal taxable offshore assets, triggering much harsher civil tax penalties or even a life-altering criminal tax or foreign information reporting investigation. If you’re considering shutting down an offshore account to avoid detection or FBAR penalties, speak to qualified counsel first. Call our office today at (888) 640-3408 or schedule a reduced-rate initial consultation online to discuss your safest path forward.
The IRS Has Already Tipped the Scales in Its Favor
If you believe that the IRS will never discover your foreign account, you’re underestimating the tools at its disposal. Under the Foreign Account Tax Compliance Act (FATCA) and Bank Secrecy Act (BSA), the IRS and Financial Crimes Enforcement Network (FinCEN) receive automatic information exchanges from over 110 countries and 300,000 financial institutions worldwide.
These institutions are legally required to identify U.S. account holders and report:
- Account balances
- Gross income (e.g., interest, capital gains and dividends)
- Names, addresses, and TINs of U.S. beneficial owners
- Movements of funds in and out of accounts
Even if your foreign account is in a jurisdiction historically known for banking secrecy — like Switzerland, Singapore, or the Cayman Islands — FATCA has largely eroded that shield. Offshore banks & brokerages now routinely flag and report U.S. account holders to avoid sanctions or exclusion from U.S. markets.
So, by the time you’re asking whether you can close your account before the IRS “finds it,” there’s a high probability the IRS already knows.
Closing an Account Does Not Eliminate Past Violations
If you’ve failed to report your foreign financial account on one or more FBARs (FinCEN Form 114) or failed to report the offshore taxable income from that account on your Form 1040 and Schedule B, closing the account now will not erase those past violations.
To the contrary:
- You are still legally required to file FBARs for every year you held the account and the balance exceeded $10,000 in aggregate.
- You are still required to file Form 8938 (Statement of Specified Foreign Financial Assets) if your account exceeded certain thresholds under FATCA.
- You are still required to report and pay tax on any income generated by the account, such as interest, dividends, rental income, or capital gains.
In fact, if you close a foreign bank or investment account after learning about your obligation to file FBARs or disclose offshore income, without participating in an approved IRS offshore disclosure program such as the Streamlined Procedures or Voluntary Disclosure Practice, the IRS may interpret your conduct as willful concealment. This turns what could have been a non-willful violation (with limited civil tax penalties) into a willful violation, exposing you to significantly harsher consequences, including a civil penalty equal to the greater of $100,000 or 50% of the account’s highest balance—and in worst cases, a life-changing criminal tax prosecution.
Willful vs. Non-Willful FBAR Penalties: Why Timing Matters
The penalties for failing to file an FBAR depend on whether the IRS considers the failure willful or non-willful:
- Non-willful penalties are generally capped at $10,000 per year per account (adjusted for inflation), though this can still add up quickly.
- Willful penalties can be up to 50% of the account balance per violation, or $100,000, whichever is greater, and are imposed annually.
- Criminal tax penalties for willful failure to file FBARs or for tax evasion can include fines up to $500,000 and prison time.
If you close your account after you know you are supposed to report it but choose not to, the IRS may infer willfulness. Prosecutors can argue that the closure was part of a deliberate scheme to obstruct collection, commit tax fraud, or engage in money laundering.
In short, closing an account won’t help you if the IRS already has your records. But it can absolutely hurt you if the closure is interpreted as willful tax concealment.
Foreign Banks & Brokerages May Have Already Reported You
Under FATCA, foreign banks & brokerages file annual reports with the IRS naming their U.S. account holders. Many institutions, in an effort to limit their own liability, notify the IRS in advance when they believe a customer may be attempting to evade tax reporting obligations.
In some cases, the bank itself will:
- File a suspicious activity report (SAR) with local or U.S. authorities
- Issue an exit report to the IRS detailing the closing balance and disposition of funds
- Freeze transfers or refuse to process closure requests until the customer provides U.S. tax documentation (such as W-9 or W-8BEN forms)
Attempting to quietly transfer funds to another offshore account or through a nominee or shell company is one of the classic “badges of fraud” that IRS special agents are trained to investigate, especially in high-risk eggshell audit or reverse eggshell audit settings.
If you’ve already closed a foreign account — or moved funds elsewhere — you should not assume the trail has gone cold. The IRS often builds its case using older account statements, wire transfer records, or third-party reports obtained via John Doe summonses or treaty-based information requests.
Voluntary Disclosure For Willful Behavior: A Narrow Window to Avoid Criminal Prosecution
If you’ve purposely failed to report foreign accounts or offshore income and are not yet under a high-risk IRS audit or criminal tax investigation, the IRS’s Voluntary Disclosure Practice (VDP) may offer you a final opportunity to come forward, correct past noncompliance, and avoid criminal tax prosecution. This program is designed for taxpayers whose conduct was willful, meaning they knew of their reporting obligations (such as FBAR or FATCA) and chose not to comply.
Through voluntary disclosure, you can:
- File six years of amended tax returns and FBARs;
- Pay all back taxes, interest, and a civil fraud penalty (typically 75% of the tax due for the highest deficiency year);
- Resolve any unreported foreign income or account reporting issues under a structured and pre-approved process;
- Avoid criminal charges for tax evasion, filing false returns, or willfully failing to file FBARs.
- Pay a onetime FBAR penalty in the amount of 50% of the highest account balance over the 6 year period of the voluntary disclosure.
However, eligibility for VDP is strictly time-sensitive. The IRS will not accept your submission if it has already initiated a civil audit or criminal tax investigation, even if you were unaware of it. Worse, if you closed your account or transferred the funds after learning about your legal obligations, the IRS may view it as an attempt to obstruct justice, disqualifying you from VDP and triggering criminal exposure.
It is critical that you do not attempt to navigate the VDP process alone or rely on your original tax return preparer. Only a criminal tax defense attorney can offer the attorney-client privilege, work-product privilege, and legal training needed to protect your rights and negotiate your entry into the program. At the Tax Law Offices of David W. Klasing, our dual-licensed Tax Attorneys and CPAs, Kovel CPAs, and EAs bring unmatched experience in offshore disclosures. We help clients avoid devastating civil tax penalties and criminal tax prosecution while simultaneously protecting their liberty and preserving their net worth.
Quiet Disclosures Are Not a Safe Option
Some taxpayers think they can avoid attention by simply amending their past tax returns and FBARs without going through the formal voluntary disclosure process — this is known as a “quiet disclosure.” The IRS has explicitly warned against this tactic.
If the IRS discovers a quiet disclosure during audit or criminal tax or foreign information reporting enforcement, it may:
- Deny penalty relief
- Impose maximum willful tax penalties
- Refer the case to their clandestine Criminal Investigation Division (IRS-CID)
Quiet disclosures create a false paper trail that suggests the taxpayer hoped to fly under the radar without drawing scrutiny. If that intent is inferred, the IRS will treat the conduct as willful and pursue civil and criminal tax penalties accordingly.
What If the Account Is Already Closed?
Even if your account is no longer open, your reporting obligations do not disappear. You are still required to:
- Report prior years in which the account existed and exceeded $10,000
- Pay taxes on any income that was generated while the account was open
- Disclose the closure to the IRS if the information is requested or relevant to your case
Failure to disclose closed accounts, or misrepresenting the timeline or ownership of those accounts, can trigger obstruction of justice or false statement charges under 18 U.S.C. § 1001.
In many cases, closing the account increases scrutiny, especially if the closure coincides with IRS enforcement activity, high-profile investigations, or shifts in FATCA reporting deadlines.
Contact the Tax Law Offices of David W. Klasing If You’re Holding (or Have Held) an Undisclosed Foreign Account
If you’re thinking about closing a foreign bank account that has not been correctly reported to the IRS or FinCEN, do not act before consulting with experienced legal counsel. Attempting to hide or erase your trail, especially now, amid heightened global enforcement, can backfire catastrophically.
At the Tax Law Offices of David W. Klasing, our nationally recognized, award-winning dual-licensed Tax Attorneys and CPAs offer comprehensive legal guidance to taxpayers grappling with foreign asset disclosure. We help clients evaluate whether they qualify for:
- Streamlined Foreign or Domestic Offshore Procedures, which are designed for non-willful violators and may significantly reduce or even eliminate tax penalties.
- The Voluntary Disclosure Practice (VDP) for those who cannot credibly claim non-willfulness but wish to avoid criminal tax and foreign information fraud prosecution.
- Reasonable cause defenses for late or missed filings, based on individualized circumstances and supported by documentary evidence.
- Strategic protection against eggshell or reverse eggshell audits, where your disclosures could become the basis for civil tax fraud penalties or criminal tax referral to the DOJ if handled incorrectly.
Do not gamble with your future by filing late or attempting a quiet disclosure without representation. Call us today at (888) 681-1295 or schedule a reduced-rate initial consultation online. At the Tax Law Offices of David W. Klasing, we don’t just fix offshore disclosure problems, we help you sleep peacefully at night knowing they’ve been fixed the right way.
