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Penalties for failure to disclose offshore bank accounts, Part 2

In the last post, we began a discussion of penalties that may be assessed for failure to declare offshore bank accounts. One reason this is of particular interest is that the U.S. government is currently offering an amnesty to holders of undeclared offshore bank accounts if they come forward by August 31st of this year.

The amnesty extends to a guarantee that the account holder will not have to serve a jail sentence. However, the back taxes owed, plus interest and penalties, will still have to be paid.

Additional penalties that were not among the three discussed in the last post include penalties for:

4. Failure to file an FBAR. This is a Treasury form, as opposed to an IRS form, the long name of which is Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts. Even if offshore accounts were disclosed to the IRS, it does not excuse the failure to file the FBAR with the Treasury. The FBAR must be filed if there are foreign accounts with a combined interest exceeding $10,000. The penalty for failure is 50 percent of the total balance in foreign accounts, per violation, or $100,000, whichever is greater. Penalties for failure to file the FBAR can end up exceeding the total value of the offshore accounts.

5. Failure to pay the tax shown on the return. Failure to pay tax shown incurs a penalty of 0.5 percent of the tax shown, plus 0.5 percent more for each month it goes upaid, up to a total of 25 percent of the unpaid tax.

6. Failure to accurately pay the total tax owed. Accuracy failures may lead to a 20 or 40 percent penalty.

7. Failures to file other forms. These include

  • Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. (Roughly 35 percent penalty);
  • Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. ($10,000 penalty per violation, up to $50,000);
  • Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business ($10,000, plus $10,000 each month unpaid);
  • Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. (Penalty of 10% of the value of the property transferred, up to a maximum of $100,000, but without limit if the failure was intentional.) 
  • Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. ($10,000 penalty, but with aggravating factors can reach $50,000 or $100,000.)

Orange County offshore bank account attorneys point out that although these penalties are extremely harsh, they would be even worse if the taxpayer also had to serve a jail sentence.

Source: Fox Business "IRS Announces Amnesty Program for Holders of Offshore Accounts" 7/7/2011

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