We who live in the Washington, D.C., area know it is a cosmopolitan place. There are many people who live throughout the District and suburban Maryland and Virginia who are new immigrants or first-generation citizens.
Any who work and make a living here have the obligation of filing their yearly income tax returns. But there may be many who are also liable for filing other forms with the Internal Revenue Service who may not even be aware of their obligations. These are individuals who may be the beneficiaries of foreign accounts that were started by loving families in the home country.
For example, there’s the case of a woman whose parents opened a British bank account for her daughter. It now holds more than $10,000 and is therefore subject to being reported with the use of Foreign Bank and Financial Accounts forms.
Or, consider the man who has an aging parent somewhere on the continent. He has signatory power on all his accounts. Each account is worth more than $10,000. Each one requires a separate filing of forms.
That the accounts are out of sight and very likely out of mind doesn’t release a person from filing the necessary forms. The IRS, in its current mode of cracking down on foreign account tax compliance, could well take aim at such accounts. The action could come years down the road and the penalties and interest for failing to report them could wind up costing more than the accounts hold.
Many who read this blog will know about the various amnesty programs that have been employed by the IRS. The Offshore Voluntary Disclosure Initiatives (OVDI) may be beneficial in some circumstances if the oversight was deliberate. But in many situations, tax experts suggest it can be better to simply file all required forms late.
The reason for that is that the issues then get handled under regular tax codes, rather than stricter OVDI requirements. Penalties and interest can be lower, if charged at all. And they can be more easily appealed if charges are applied.
Anyone in the Washington, D.C., area with questions regarding possible foreign accounts would do well to contact an experienced tax attorney to learn their options before taking action, keeping in mind that there are deadlines that may need to be met.
Source: The Wall Street Journal, “Importance of reporting overseas assets,” Eva Rosenberg, May 13, 2013