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Two steps to bring foreign accounts into compliance with the IRS

Keeping up with tax obligations can be difficult. It can be confusing to know exactly what to report and which forms to file. However, a failure to keep up with one’s tax obligations can result in serious financial penalties and even, depending on the details of the allegations, the potential for prison time.

When can a failure to comply with tax obligations lead to prison time?

If the Internal Revenue Service (IRS) can establish the failure to comply was willful, the agency may push for prison time. Essentially this means the agency needs to show that the accused intentionally avoided their tax obligations.

What should a taxpayer do if they failed to report foreign income or assets?

The steps to come into compliance depend on the type of asset. This piece will focus specifically on accounts or assets held overseas. In many cases, the following steps are required to bring these previously unreported foreign assets into compliance with U.S. tax law:

  • Catch up on FBAR filings. Generally, the first step involves coming into compliance with one’s Report of Foreign Bank and Financial Accounts (FBAR) for the six preceding years. In most cases, the IRS will not apply a penalty for a delinquent FBAR if the taxpayer has reported and paid all applicable U.S. income taxes.
  • Find a voluntary disclosure program. After compliant with FBAR filings, the taxpayer will generally benefit from partaking in a voluntary disclosure program. Options include the Voluntary Disclosure Practice, Delinquent International Information Return Submission Procedures or the Streamlined Compliance Procedures.

It is important to note there is no “one-size-fits-all” answer to tax problems. Although the above provides basic guidance to those who need to bring foreign accounts into compliance with the IRS, other methods may be better suited to resolve your situation. As a result, it is wise to seek the counsel of an attorney experienced in this niche area of tax law to better ensure your interests are protected.

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