It’s common knowledge that the majority of U.S. citizens – around 240 million of them, according to the Internal Revenue Service (IRS) – are required to annually file a federal personal income tax return. What fewer taxpayers are aware of, with potentially disastrous consequences, is that the Internal Revenue Code contains an additional requirement pertaining to citizens who reside in, or maintain bank accounts in, foreign countries. It is hardly surprising that many taxpayers (and more alarmingly, tax preparers) are unaware of these requirements, considering the United States is the only nation on earth to enforce them, other than Eritrea. Nonetheless, ignorance of tax law is no excuse for noncompliance. Indeed, even an accidental failure to comply can result in costly penalties, while deliberate disregard for the law can lead to penalties of an even greater magnitude. In order to avoid or at least minimize these penalties, it is crucial for taxpayers to familiarize themselves with some fundamental income reporting requirements for expatriates and holders of foreign financial accounts.
No matter where in the world an individual resides, be it Switzerland, Mexico, the United Kingdom, Australia, or anywhere else, he or she will be subject to a foreign income reporting requirement known as the Report of Foreign Bank and Financial Accounts – more commonly, “FBAR” – if the taxpayer meets certain criteria, which our international tax attorneys discuss in the following section of this article.
There are two groups of taxpayers primarily affected by FBAR laws:
If you belong in either of these groups, pay close attention to the following information, as you may be affected.
Taxpayers are required by law to file an FBAR if both of the following criteria apply:
It does not matter whether the country in which the account exists is traditionally considered a tax haven or not. Regardless of the nation in question, the aforementioned criteria apply universally.
While this may sound simple so far, FBAR instructions are, unfortunately, anything but, highlighting the importance of receiving guidance from an international FBAR lawyer. On the contrary, there are numerous details which taxpayers must consider, such as the following:
By no means is this an exhaustive list of the tricky specifications impacting FBAR filings. This IRS overview should give taxpayers an idea of how nuanced – and how easy to unintentionally violate – the existing FBAR regulations truly are.
Foreign assets must be reported by filing an FBAR, an electronically-submitted tax form officially titled FinCEN Form 114 (previously known as Form TD F 90-22.1). FBAR can only be filed in one place: the BSA E-Filing System, which is a government submission portal maintained by the Financial Crimes Enforcement Network (FinCEN). Do not attempt to mail the IRS a paper copy of your FBAR, which will simply cause confusion and delays. You may, however, choose to mail a paper copy of your tax return.
The annual FBAR deadline is typically April 15. However, FBAR deadlines can be affected by the extensions, if any, requested by the taxpayer. The IRS provides a comprehensive overview of this subject here.
To quote an article published in the Wall Street Journal several years ago, “Experts worry that despite extensive publicity, taxpayers and even preparers are still unaware of the FBAR requirement.” In the words of one New York-based attorney, “I’ve seen scores of returns where foreign income was reported, yet the preparer checked a box saying there were no foreign accounts.”
Fortunately, you can avoid this all-too-common situation – and the financial headaches which can result – by selecting a skilled and reputable tax preparer or tax attorney who has extensive international tax experience specific to FBAR compliance. At the Tax Law Office of David W. Klasing, we have devoted much of our practice to assisting and representing expatriates and citizens abroad, giving our dedicated team of tax professionals a deep and nuanced understanding of FBAR laws and how to navigate them successfully. When you are represented by one of our experienced tax lawyers, tax preparers, or CPAs, you can feel peace of mind that you are receiving dependable advice and zealous advocacy. To arrange a reduced-rate consultation concerning an FBAR, a federal income tax return, or related tax issues, contact the Tax Law Office of David W. Klasing online, or call today at (800) 681-1295.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
Foreign income and information non-compliance
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