Thousands upon thousands of Americans have some amount of money in an account that is deposited with a bank that is outside of the United States. There is certainly nothing per se illegal against keeping your money outside of the U.S. If you have a foreign account, it is probably common for you to receive some regular correspondence from your overseas bank. But watch out, a growing amount of foreign banks are sending out letters that can be precursors of draconian fines or even time in prison on the horizon if you have failed to report the existence of your foreign account on FinCen Form 114 (Previously TDF 90-22.1) and reported the income generated by the foreign account for U.S. income tax purposes.
Your Bank’s Obligation to Report U.S. Account Holders
As of July 1st, legislation passed by congress requires that foreign banking institutions turn over names and other information of American account holders. The Foreign Account Tax Compliance Act (FATCA for short) is attempting to ensure that U.S. citizens are reporting any income that they make, even if it is made outside of the country. Banks who refuse to comply with the mandate face a 30% withholding of any payments made to institution from within the United States. Banks are not willing to risk that financial burden and have already demonstrated that they are willing to compromise their client’s privacy to avoid it.
Read Your Forieng Banking Letter Carefully
The correspondence that an account holder of any foreign bank usually receives are generally account statements or informational letters regarding interest rates and other administrative matters. The recent waves of letters that have been sent from banks around the world to their U.S. clients are different. They commonly ask the account holder to verify their citizenship or ask if the taxpayer has disclosed the account to the government. Often, the letters will educate the account holder of the Voluntary Offshore Disclosure Program or ask if you have already participated in it.
Potential Life-Altering Consequences
These letters are not something to balk at. Generally, receiving this letter is an indication that your foreign bank is preparing to release your information to the IRS. Once that is done, the government will look to see if your account ever had in excess of a $10,000 balance. If it did and you did not report it on an FBAR or on your federal income taxes, the case will likely be referred to the Criminal Investigation Division of the Service. At that point, the government will begin to build a case against you. A U.S. citizen can be sentenced up to five years in prison for each year that they willfully failed to file an FBAR and can be penalized up to 50% of the balance of the foreign account for each year that they willfully failed to report (up to 250% of the account’s balance). The civil penalties alone can easily reach double the amount of the balance of the account in question.
Why You Should Do Something About it Before it’s Too Late
If you have received this type of letter from your foreign bank, it’s not too late. Until the government receives your name and account information and chooses to act on that information, you have the opportunity to avoid the possibility of time in a federal prison and reduce the potential civil penalties for failing to report your foreign account. As we mentioned earlier, the 2014 Offshore Voluntary Disclosure Program (OVDP) allows taxpayer to come clean with the government and stay out of prison. If you have received a letter like the one that was described above, your best course of action would be to contact an experienced tax attorney. The professional tax attorneys at the Tax Law Offices of David W. Klasing have helped hundreds of taxpayers all over the world participate in the OVDP in the past and continue to do so today. But you must hurry. If the IRS receives your information from your bank and you haven’t already entered the program, you are no longer eligible and you could face the full gamut of criminal and civil penalties available to the IRS.
If you want to ensure your freedom and keep as much of your money in your wallet as possible, contact us today for a reduced rate consultation, time is not on your side.
