There aren’t many penalties that large in the world, but leave it to the IRS to come up with one. There has been plenty of press about the IRS going after foreign tax evaders, putting the Swiss banks over the coals, etc, but none of that has anything to do with little old you, right? Just a simple taxpayer from the Heartland, I don’t even know where The Isle of Man is, much less have some secret bank account there. With a 40% penalty, you better be sure.
Prior to the 2010 HIRE Act, the penalty for failure to report a foreign financial asset was 20%, but the new law raises that to 40%, and the IRS is aggressively working these (remember, penalties are easier than audits).
So what is the IRS looking for here? Money, of course, but a Specified Foreign Financial Asset is:
Depository or custodial accounts at foreign financial institutions
Stocks or securities issued by foreign persons
Any other financial instrument or contract held for investment that is issued by a non-U.S. person
Any interest in a foreign entity
That is a pretty expansive list. Ever work overseas? Have relatives living/working overseas? Better double check what is out there.
Here is the real problem. The IRS assumes the worst. Example: Say your old maid aunt moved to Australia when she retired. When she died, she left you a bank account worth $50,000, that you didn’t know about. And now assume that the IRS finds out about the account. They don’t know where the money came from, so they’re going to assume that is income. $20,000 penalty. Thank you, sir, can I have another?
The easy solution is to find out what may be hiding and file the disclosure with the IRS. Report the assets on Form TD F 90-22.1, and of course, report any related income on your tax return.
Let our experts help you, contact our offices in Oklahoma City: 405-288-1209 or Tulsa: 918-209-3441 to get the help you need.