When your tax professional inquires if you had an interest in or controlled one of more foreign accounts with an aggregate value above $10,000 at any time during the calendar year, give this question the attention it deserves. The question is quite broad. If you have family in a foreign country and have joint ownership with another person of a foreign account (not restricted to bank accounts), you may have a foreign reporting responsibility. For example, you are a joint owner with your parents on a foreign account. The money may be your parents and your name may be on the account for convenience purposes only, but for U.S. reporting purposes, you are an owner of that account. Also if you relocated from a foreign country to the U.S. and hold a retirement account in the foreign country, you may have a foreign reporting responsibility depending upon the tax treaty the U.S. has with that foreign country. It is best to make inquiries with your tax professional to avoid the FBAR (Foreign Bank Account Report) penalty.
And then there are those individuals, like Mindy Norman. She opened a Swiss numbered bank account in 1999 with Union Bank Switzerland (UBS) to conceal her income from the IRS. A year later, she took another step to conceal her financial information from the IRS by signing to waive her right to invest in U.S. securities.
In 2008, Norman transferred her funds out of UBS when the bank notified her that it would no longer provide offshore banking and would assist the IRS in identifying U.S. clients who may have engaged in tax fraud. She could not provide the courts with any evidence that she attempted to find out what her U.S. reporting responsibilities were with respect to her foreign investments.
On Norman’s 2007 Form 1040 (Schedule B), she claimed that she had no foreign bank account. Remember that when you sign your Form 1040, you are doing so under penalties of perjury.
In 2009 when she could have applied for the Offshore Voluntary Disclosure Program, which would have at least resulted in a significant reduction of FBAR penalties, she filed what is known as a quiet disclosurethrough her Swiss accountant by filing amended tax returns and FBARS for the years 2003 – 2008, but failed to notify the IRS or admitting she violated the law. The quiet disclosure is when a taxpayer merely marks the yes boxes on Schedule B that foreign accounts exist and hopes for the best.
This non-compliance approach resulted in Norman being assessed an $803,530 penalty (which was 50% of the unreported balance in her account) for a willful failure to file a FBAR (Form FinCEN 114) with respect to her UBS account she held in 2007.
If you have any accounts or investments relating to assets held outside of the U.S., be sure to share this information with your tax professional.
Bryan Haarlander, EA, CTRS
Keystone Financial Solutions, Inc.
47 Marchwood Road, Ste 2G
Exton, PA 19341
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