Foreign Income & Bank Accounts
U.S. citizens and residents are required to report and pay taxes on their worldwide income, not just from sources in the U.S. However, there will often be a treaty in place with the foreign country that excludes certain income from U.S. taxation. Even if there is no treaty in place, our tax code has some provisions to prevent the income from being taxed twice. International tax treaties and rules are kind of a mess, so please consult with me about your particular situation and what needs to reported where.
What's this "FBAR" form I keep hearing about?
FBAR is a reporting form that you're required to file if you have foreign bank accounts with more than $10,000 in them. It is not part of a tax return, but filed separately with the United States Treasury; there is also an IRS tax form called Form 8938 with a similar function.
I didn't file FBARs in past years. Am I in big trouble?
Probably not. You can only be penalized if the failure to file the report was "willful" - you knew you had to file it and you didn't file it. Most of the time, people just didn't know about it. I have done over 100 late FBAR filings and I have never had a client fined for it. Usually it's not a big deal - we just file the report and amend the taxes if necessary.
The IRS will not fine people for failing to file an FBAR report, as long as they properly reported and paid all their taxes for the year. You don't have to take my word for it, take theirs.
What is "OVDP"? How about "streamlined" disclosure versus "quiet" disclosure?
OVDP stands for "Offshore Voluntary Disclosure Program." It is a program where you can agree to pay 5% of your undisclosed foreign bank accounts in exchange for not being fined or prosecuted. "Streamlined" is another word for this type of disclosure. "Quiet" disclosure is a term used to describe filing FBARs without OVDP. (usually used by firms trying to sell the OVDP service)
As I explained above, you can only be fined if the failure to file the report was "willful" - you knew you had to do it, and you didn't do it. Most of the time, failure to file FBARs is not willful. Most people are not at risk for fines or prosecution and do not need to use OVDP; the procedure is just to file the reports and amend the taxes if necessary. Like I said above, the IRS will not fine people for late FBARs so long as they properly filed and paid their taxes.
You can write me to ask your own question.