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Part II: Federal forms, foreign accounts and failure to's

The first part of this two-part post talked about the very generic reporting requirements under the Federal Tax Code for taxpayers in Minneapolis who have foreign bank accounts. The second post will focus on the “what if” side of a reporting error or failure to report the amount of assets in these accounts.

Starting off is the reiteration that when it comes to tax reporting and consequences the answer to questions is most often an “it depends on the circumstances,” which is why consultation with a tax attorney should be the first step in a tax liability solution. But what are some of the consequences that could result if the Internal Revenue Service determines that a taxpayer has failed to accurately report a foreign bank account with an FBAR form.

In some cases, the IRS may deem a situation as minor enough that the agency simply requests a clarification and ignores any tax penalties. Of course, this doesn’t happen in every case.

The reporting requirement is for every tax year, not just once. Should the IRS determine that there was a failure to report, each year is considered a violation. There are two types of penalties: civil and criminal.

There are two categories of civil penalties that depend on whether the IRS considers the failure to report willful or not. For non-willful violations there is a possibility of $10,000 per violation. For a willful violation, the penalty is $100,000 or 50 percent of the value of the offending account.

As for criminal penalties, a taxpayer could face a $250,000 fine or even a 5-year term of imprisonment. If the violation occurs in combination with another tax violation, it could increase to a $500,000 fine or as high as a 10-year term.

These penalties are in no way minor, which is why it is so important for those who are facing prosecution from the IRS to obtain experienced tax representation to help ensure the best possible outcome.

Source: Forbes, “Will IRS Find Your Small Foreign Bank Account?” June 25, 2013

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