You have mail: What to do when the IRS asks about a foreign asset

On Behalf of | Sep 12, 2018 | Tax Audits

Those who are savvy in their financial planning efforts likely have diversified their investments. For many, this includes the use of financial assets. When done wisely such planning is legal and beneficial. However, a simple misstep could result in a failure to report the assets to the proper authorities.

What will happen if I do not properly report foreign accounts? United States taxpayers are required to report foreign assets. A failure to do so can result in harsh monetary penalties and, depending on the evidence gathered by the Internal Revenue Service (IRS), potential imprisonment.

These penalties can be reduced by proactively coming into compliance with applicable tax laws.

How will I know if the IRS is looking into my accounts? Unfortunately, you may not know when the IRS begins an investigation into your assets. In some cases, a foreign bank may send a letter to account holders requesting information about the account holder’s American status. The communication may request tax identification information and verification that the recipient is in compliance with the IRS. It is wise to take such communication as a call to action.

Will the bank really report the information to the IRS? It is very likely. The Foreign Account Tax Compliance Act (FATCA) requires banks to report such information. Those that fail to comply face stiff penalties. The threat of these penalties has successfully encouraged compliance worldwide.

How should I handle this situation? In this case, it is best to seek legal counsel. The rules surrounding disclosure are changing. An attorney experienced in these matters can discuss upcoming deadlines, the sunset of programs and the best way to come into compliance while mitigating the risk of serious penalties. The legal council with Goldburd McCone LLP can provide guidance on these matters.