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  • Kenneth D. Eichner, P.C.

On the Hunt for Foreign Accounts

IRS and the Justice Dept. are on the prowl for undisclosed foreign accounts, devoting resources to get U.S. owners of the accounts to timely report them each year if the aggregate value exceeded $10,000 at any time during the prior year. Penalties for nonreporting are stiff: $10,000 apiece for non-willful violations. The larger of $100,000 or 50% of the highest balance in the account for willful failures. If you haven’t reported your overseas accounts for 2020, you can still do so. People who missed the April 15 deadline to electronically submit FinCEN Form 114 to report foreign accounts automatically have until Oct. 15 to file the FBAR form.

Among the government’s weapons for sniffing out offshore accounts: Seeking court orders to acquire names of U.S. account owners at foreign banks. Investigating promoters and others who help their clients hide assets offshore. And foreign bank reporting on U.S.-owned overseas accounts of over $50,000 under the Foreign Account Tax Compliance Act, which was enacted in 2010. The fine for willfully failing to report foreign accounts isn’t capped, an appeals court decides. Under the statute, the penalty for willful failures is the greater of $100,000 or 50% of the highest balance in the overseas account. IRS regulations promulgated in 1987 before the statute was amended in 2004 to add the 50% language, state that the penalty is capped at $100,000. The appeals court says the statute supersedes the regulations (Kahn, 2nd Cir.). IRS now has a perfect 4-for-4 record in appeals courts on this issue. Penalties for non-willful failure to report foreign accounts survive death of the account owner, a court rules. IRS assessed the non-willful penalty against a man who later died without paying the bill. The Service then tried to collect from his estate. The estate claimed that the penalties were penal and should be abated upon the death of the account owner. The court disagreed, saying the decision was a close call but ultimately deciding that the fine was primarily remedial (Gill, D.C., Texas). Kiplinger Tax Letter.


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