FBAR Tax Compliance for Expats in Australia
While many Americans simply think of the cultural aspects of Australia that have been made famous through movies and television, there is significantly more to the country than mere stereotypes. In fact, from a humble modern start where the island inhabited by native Australians was used as a penal colony by the British, the island nation has developed into an economic powerhouse. Today, Australia is a highly urbanized nation where much of the population has congregated along the eastern coasts and eastern states including expats. More than ever, there is a need to ensure tax compliance for expats in Australia. The country is one of the wealthiest nations in the world ranking fifth in per capita income and with the 12th largest economy in the world.
The economic opportunities and increased access to Asian markets are but a few of the factors that makes Australia appealing to American expatriates. The nations share a common language and there are many cultural similarities due to the British influence on both nations. In short, Australia is typically seen as providing ample economic opportunity and as a good cultural fit for Americans, however regardless of where in the world an American may reside, they still have numerous tax and disclosure obligations to satisfy. The failure to do so can result in serious civil or criminal tax consequences.
U.S. Expatriates Living Abroad Must Still make FBAR & FATCA Disclosures
Following the turmoil wrought by World War II and for at least a generation, holding a secret account in a foreign bank or foreign financial institution was not seen as particularly remarkable. In fact, survivors of WWII and the Holocaust often went on to recommend to their children and grandchildren to stash some money overseas “just in case.” While these individual’s hearts were in the right place and they were simply providing advice based on their experiences, following this type of advice today would almost undoubtedly result in serious tax consequences and potential criminal prosecution.
Under the Bank Secrecy Act, an FBAR (Report of Foreign bank and Financial Accounts) filing obligation exists for all U.S. taxpayers with foreign accounts with balances exceeding $10,000. Recent amendments to the law not only created a penalty for even inadvertent FBAR compliance errors, but also strengthened the penalties that can be imposed for willful FBAR violations. Even a FBAR compliance failure that is the product of a mistake or oversight can be punished with a fine of up to $10,000 for each year where the account was in a noncompliant state.
While the penalties for a accidental non-compliance are harsh, the penalties for a willful failure to make an accurate and complete FBAR disclosure are even more harsh. A willful failure to disclose means that that taxpayer intentionally or voluntarily disregarded a known legal obligation. An intentional or voluntary violation can be punished by a penalty that is the greater of 50 percent of the original account balance or $100,000. Since the fine can be imposed for each year where the account was noncompliant, penalties can quickly exceed the funds originally held in the account.
Furthermore, U.S. taxpayers may also be required to make disclosures under Foreign Account & Tax Compliance Act (FATCA). Some accounts may require disclosure under both FBAR and FATCA. Others may need to be disclosed under one reporting regime but not the other. The exact level at which a taxpayer must disclose accounts is more nuanced than in the case of FBAR where one limit applies. For FATCA both the taxpayer’s filing status and whether they are living within the United States or in a foreign jurisdiction. If applicable, taxpayers should always make required disclosures because more than 100 nation shave agreed to provide information regarding U.S. linked accounts. The United States government uses the information provided by foreign financial institutions to identify and prosecute noncompliant taxpayers.
OVDP can Provide a Path to Reduced Consequences and Tax Compliance
The IRS and DOJ aggressively pursue taxpayers who have failed to satisfy their tax obligations. But , the government does recognize that the reporting requirements represent a significant departure from business as usual for many individuals. As such, the government has offered number of versions of programs intended to encourage taxpayers to come forward voluntarily. While the Offshore Voluntary Disclosure Program can provide a pathway to reduced penalties and cost for coming into compliance, no program can fully eliminate all penalties. However those who wish to utilize this program should act quickly because the IRS can revise the program at any time. Past revisions have not been favorable to the taxpayer and that trend is expected to continue.
If you have serious concerns about a potential offshore tax issue, the experienced tax professionals of the Tax Law Office of David W. Klasing may be able to help. To schedule a reduce-rate tax consultation call our firm at 800-681-1295 or contact us online.
We offer reduced-rate initial consultations.