Unreported foreign income, assets and accounts are subject to substantial penalties
that can exceed the value of the assets. Most taxpayers inadvertently violate these rules. The IRS has disclosure programs for such taxpayers to achieve compliance.
What are a US Taxpayer’s reporting obligation for foreign income or assets?
A US taxpayer’s global income is subject to US income tax and must be reported on a tax return. US tax laws require US taxpayers to report, regardless of income, foreign bank accounts, certain foreign assets, ownership in foreign businesses and gifts from a foreign person or trust. And most US Taxpayers are completely unaware of these rules or the enormous penalties for failing to report income or assets.
Penalties for unreported foreign income
The penalties for unreported foreign income can be extremely severe. In fact, they can oftentimes exceed the value of the assets. This means that if the IRS discovers that you have unreported foreign income, you could suddenly find yourself facing serious financial difficulties and even jail time. Part of the reason why penalties for unreported foreign income are so steep is because the IRS wishes to discourage people from thinking they can get away with not paying taxes on foreign income by hiding it.
Reporting foreign financial accounts and assets
In addition to reporting your entire global income, you are also required to report any foreign financial accounts on an FBAR and sometimes Form 8938. Further, other foreign assets may need to be reported on different foreign information returns. Failure to report accounts, assets or gifts can lead to substantial penalties.
What to do if you have unreported foreign income or foreign financial accounts
IRS has developed disclosure programs to encourage taxpayers to disclose unreported items and achieve compliance. Generally, these programs require a taxpayer to file missing or amended returns, explain the reasons for noncompliance and pay additional tax (and reduced penalty). Taxpayers that are accepted into these disclosure programs typically avoid the most severe penalties associated with unreported foreign income or assets.
The following voluntary disclosure programs are available to help you disclose your foreign income:
- Streamlined Filing Compliance Procedures
- Delinquent FBAR Procedures
- Delinquent Foreign Information Procedures
Kugelman Law can guide you through disclosure to achieve compliance and avoid the harsh penalties.
We have guided our clients through the various foreign disclosure procedures. We take a conservative approach to be certain that all items are reported and the taxpayer participates in the appropriate disclosure program.
Please feel free to call us at any of the following numbers to get started today:
San Francisco Office – 415.548.1125
Irvine Office – 949.371.5255
Marin Office – 415.548. 1125