New IRS filing deadlines and other changes for offshore account holders

A number of recent changes to federal tax law came in an unlikely package: a piece of legislation known as the Surface Transportation and Veterans Health Care Choice Act of 2015. As the name suggests, that law deals primarily with non-tax issues. However, it contains some important changes to IRS filing requirements that came in the form of legislative "riders," or unrelated provisions attached to the main bill. One of those provisions changes the deadline for reporting foreign financial accounts so that it falls on April 15, the same day that income tax returns are due.

New FBAR deadline helps streamline tax compliance

Taxpayers with foreign assets above a certain threshold are required to report those assets to the IRS by filing a FinCEN Form 114, which is better known as an FBAR, or Report of Foreign Bank and Financial Accounts. Prior to the recent changes, the deadline for filing an FBAR was June 30, well after the due date for income tax returns.

The staggered deadline, combined with the fact that many people do not realize they must file an FBAR separately even though they have already reported the income from those returns on their tax returns, has contributed to confusion among some taxpayers about their reporting obligations and how to meet them. Failure to disclose foreign assets can have costly consequences, even if it is the result of an innocent error or oversight.

Civil and criminal penalties for unreported foreign assets

All U.S. taxpayers, even if they are not American citizens, must file an FBAR if they have foreign financial accounts worth a total of $10,000 or more at any point during the year. Failure to file an FBAR with the IRS can result in steep civil penalties and in some cases even criminal liability. Criminal FBAR violations can result in prison sentences of up to 10 years, for instance, while civil violations can lead to steep fines that in some cases may be equal to the full value of the unreported accounts.

In most cases, nonwillful FBAR violations carry a civil penalty of $10,000 per year, but new guidelines from the IRS provide that the penalty may be increased or decreased depending on the circumstances. Similarly, willful violations typically result in a penalty of up to 50 percent of the value of the unreported accounts, whichever is greater. In some circumstances this may be as high as 100 percent.

New law provides for FBAR extensions

Another important change for foreign account holders under the new law is that it will now be possible to receive an extension for filing an FBAR, as is already the case for income tax returns and other tax filings. Beginning in 2016, people who are unable to meet their FBAR filing requirements in time with have the option of requesting a six-month extension. This means that taxpayers who are granted an extension will have until October 15 to report their offshore bank accounts and other foreign assets to the IRS by filing an FBAR.

If you have unreported offshore bank accounts or other foreign assets, it is important that you bring those accounts into compliance with U.S. tax laws. However, it is equally important that you do so in a careful, deliberate manner in order to minimize the risk of negative legal and financial consequences. For help with unreported foreign assets and other tax compliance issues, contact the experienced tax attorneys at The Gartzman Law Firm, P.C.