FOREIGN ACCOUNT DISCLOSURE
COMPLIANCE ESSENTIAL
What Happened:
In the summer of 2008, the Swiss Bank UBS AG began cooperating with the United States Department of Justice and the Internal Revenue Service in identifying undisclosed bank/financial accounts of United States taxpayers. This is the culmination of a concerted effort on the part of the IRS to identify US taxpayers using undeclared foreign financial accounts to conceal taxable income. The IRS has been in negotiations with the Swiss Government and other Swiss Banks in releasing data on all US taxpayer accounts. We believe it will only be a matter of time before other foreign account safe havens, such as Liechtenstein, will be approached by the IRS in disclosing their US clients.
How This Affects You:
The law and compliance regulations in this area are complex, and it is very easy to inadvertently become noncompliant. While you may be aware of the requirements for disclosing foreign accounts with balances over $10,000, you may be unaware of the following:
- The account does not have to be $10,000 at the end of the year in order to require reporting. If the account balance was $10,000 or over at any time during the prior calendar year, the account is required to be disclosed.
- The account does not have to be producing any income.
- Any account with a $10,000 asset balance during the year is still required to be disclosed, even if it has been closed during the year.
- The account holder does not necessarily have to be the taxpayer. If a taxpayer owns a controlling interest in an entity (such as a corporation, trust or partnership) which owns a foreign account, disclosure may be required.
The penalties for noncompliance can be severe. Civil penalties can be either $25,000 or the total value of the account for each account not disclosed. Criminal penalties can be assessed for willful noncompliance. The Government has recently started programs to identify taxpayers who have not complied and is enforcing penalties.
How We Can Help:
Within the next week, please review your records to determine if you are affected by the foreign account disclosure rules. Let us know a good time to discuss this issue with you. If you are subject to the reporting rules, you will have plenty of time to gather the information needed for 2008, the report is not due until June 30, 2009. Should you find that you were not in compliance for prior years, voluntary filing and disclosure may help abate the penalties.
Due to the events of 9/11and the passage of the Patriot Act, IRS scrutiny is only going to increase in the area of foreign account disclosure. It is our goal to make sure all our clients are fully informed and compliant in this area.
Please contact Hal Margolit, Tax Manager, at 215-675-8364 or hmargolit@wm-cpa.com with any questions. The IRS web site has also published frequently asked questions with regard to Foreign Bank and Financial Accounts disclosure.
