Overseas Bank Accounts Tax
The USA practices worldwide taxation which means all US citizens are to report their income earned regardless of where they earn it. This means even if you own an overseas bank account, you have to declare any taxable asset inside. You also need to tick “yes” in schedule B to the question, “Do you have an interest in a foreign bank or financial account?” And if your bank balance is at least $10,000 at any time during the year, you must file a Foreign Bank and Financial Account Report (FBAR) by June 30 each year.
Once upon a time, bank secrecy laws in tax haven countries like Switzerland could protect your assets there. But since 2009, this has ceased to be so. That was the year UBS Bank of Switzerland was fined $780 million for abetting wealthy Americans in hiding their taxable assets in UBS bank accounts. After UBS, other banks like Credit Suisse and HSBC have been similarly targeted as the IRS spread their net to cover other financial institutions in other countries like the Cayman Islands, Hong Kong, India and Singapore, among others.
If you have been hiding income in overseas bank accounts, moving your assets and closing the accounts is not the answer. The same goes for quiet compliance i.e. correcting past tax returns and FBARs without drawing attention to what you were doing. While it is not illegal, the IRS warns against it. You should not just start declaring your overseas bank accounts and file FBARs from now onwards without rectifying the past. You risk drawing attention to your past misdeeds and being punished for it.
Disclosing and paying the penalties is still the best move.
Not declaring your foreign taxable assets or filing your FBAR can be considered tax evasion and fraud. The criminal statute of limitations is six years. Plus, the statute of limitations never expires on civil tax fraud. The penalty for failing to file a FBAR is $10,000 if you did not willfully neglect to file. If the offence is willful, the penalty is the greater of $100,000 or 50% of the amount in the account for each violation. Each year you don’t file is considered a separate violation.
If you are convicted of tax evasion you face a jail term of up to five years and a fine of up to $250,000. If you falsely declare your foreign income, it carries a three year jail and a fine of up to $250,000. Failing to file a tax return can mean a one year prison term and a fine of up to $100,000. Failing to file FBARs can be punishable with fines up to $500,000 and prison for up to ten years.