IRS Targets Unreported Foreign Accounts: Kiplinger Tax Letter
The IRS devotes significant resources to ensure timely reporting of overseas financial accounts.
Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…
As the IRS looks to increase tax compliance, unreported foreign accounts are a top target. The agency continues to devote significant resources to get U.S. owners of overseas financial accounts to report them each year if the aggregate value has exceeded $10,000 at any time during the prior year.
You still have time to report foreign accounts for 2022. Taxpayers who missed the April 18 deadline to e-file FinCEN Form 114 to disclose the accounts automatically have until Oct. 16 to electronically submit the FBAR form.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Nonwillful violations of foreign account reporting rules
Penalties for nonreporting overseas accounts or inaccurate filings are stiff. The penalty for nonwillful violations is $10,000 per nonfiled FBAR form. The IRS used to take the position that the $10,000 fine applied per unreported account. But in March, the U.S. Supreme Court dealt a blow to the agency by ruling that the fine for nonwillful failures to disclose foreign accounts applies per nonfiled FBAR form.
In the case, a man with dozens of foreign accounts didn’t file FBAR forms for five years. Though his failure to report was nonwillful, the IRS assessed penalties of $2.72 million. Because of the Supreme Court’s ruling, his total fine was reduced to $50,000…$10,000 for each year of nonreporting.
The IRS recently revised its internal procedures to account for the High Court’s ruling.
Willful violations of foreign account reporting rules
The fine for willful violations is much steeper: The larger of $100,000 or 50% of the highest balance in the account. The willfulness penalty can be particularly harsh, especially if there are multiple accounts and/or multiple years of nonfiling involved.
Foreign account owners have fought the willfulness penalty on many fronts. Here are three examples:
- What is the standard for willfulness? A U.S. citizen facing a $1.3 million fine asked the Supreme Court to reverse an appellate court ruling, which found that he willfully violated his reporting obligations because he acted with objectively reckless disregard of the rules. The court chose not to take his case.
- Is such a large fine constitutional? If there are multiple years of nonreporting or many accounts, the willfulness penalty can exceed the amount in the accounts. Some say a penalty of that size is an excessive fine barred by the Eighth Amendment. So far, taxpayers haven’t had luck with this argument. For instance, just last year the 1st Circuit Court of Appeals upheld a fine of over $2 million against a U.S. citizen who didn’t report her Swiss account. The court found that the penalty is not a fine for Eighth Amendment purposes, saying the penalty is remedial…not punitive… and is not tied to a criminal action. The account owner asked the Supreme Court to step in, but it decided not to. Another person, who owes $13 million in penalties for not disclosing offshore accounts in 2007-09, wants the 11th Circuit Court of Appeals to rule that such a penalty is an unconstitutional fine under the Eighth Amendment.
- Is the willfulness penalty capped at $100,000? A number of taxpayers over the years have argued that IRS regulations that were issued in 1987, before the statute was amended in 2004 to add the 50% language, state that the fine is capped at $100,000. Four appeals courts have sided with the IRS, that the statute supersedes the regs. No appeals courts have ruled for the taxpayer on this issue.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
Related Content
- IRS Ramps Up Tax Enforcement for Millionaires
- Claiming the Employee Retention Tax Credit is an IRS Audit Red Flag: Kiplinger Tax Letter
- Why the IRS Shouldn't Literally Be Knocking at Your Door
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.
-
Philips CPAP Settlement: What to Know
Philips agreed to a $1.1 billion settlement over CPAP and ventilator machines.
By Alexandra Svokos Published
-
Stock Market Today: Stocks Sell Off Ahead of Fed Decision
Stocks sold off sharply Tuesday as anxiety set in ahead of Wednesday's policy statement from the Federal Reserve.
By Karee Venema Published
-
Knowing How to Compute Tax Basis in Your Home Can Save You Money
The Tax Letter Whether you're selling or buying a home, you'll want to know how to compute tax basis. It could save you on taxes when you sell.
By Joy Taylor Published
-
IRS Warning: Beware of Smishing and 'Helper' Tax Scams
Scams Tax season is a time to look out for email and text message scams.
By Kelley R. Taylor Last updated
-
What's Happening With the Employee Retention Credit and the IRS?
Tax Credits Due to fraud, the ERC has received much attention lately from the IRS and Congress.
By Kelley R. Taylor Last updated
-
Should You Let the IRS Do Your Taxes?
Tax Filing The new IRS Direct File program is now open to more taxpayers.
By Kelley R. Taylor Last updated
-
Tax Tips for Transferring Excess 529 Plan Funds to Roth IRAs: The Tax Letter
The Tax Letter 529 plans can help blunt the cost of paying for college. But if you want to use leftover funds there are some tax tips to bear in mind.
By Joy Taylor Published
-
Top 10 Tax Expenditures in 2024: The Tax Letter
The Tax Letter Costly tax breaks will likely come under scrutiny from lawmakers trying to reduce the national debt. We review the 10 largest individual tax expenditures.
By Joy Taylor Published
-
How to Report QCDs on Your Tax Return: The Tax Letter
The Tax Letter Qualified charitable distributions, otherwise known as QCDs, can be tricky when it comes to tax reporting. We've got some pointers to help with filing.
By Joy Taylor Published
-
What to Know About Medical Expenses and Your Tax Deductions: The Tax Letter
The Tax Letter What you need to know about deducting medical costs on your tax return.
By Joy Taylor Published