Do we need to tell the IRS about our offshore account?

October 15, 2014 by Dave Du Val, EA
Ocean

Hey Dave,

We have an off-shore account, set up in 1998 when they weren't reportable, via an Isle of Man investment company (Zurich). But now under the Foreign Account Tax Compliance Act, the accounts are reportable. Our account comes due 1 Jan 2015, and we will report the earnings as income. But we hadn't notified the IRS of this account yet. Do we need to? The account value is currently about 97k.

Elliott

 

Elliot,

There are reporting requirements for taxpayers who have an interest in, or signature authority over, foreign financial accounts. This includes bank accounts, brokerage accounts, trusts, mutual funds, commodities, insurance products, offshore online gambling accounts, etc. One of these requirements is the Treasury Department’s Foreign Bank Accounts Reporting (FBAR), and the threshold amount is $10,000. The account needs to be reported if the value is greater than the threshold amount at any time during the year. Currently, this is reported via the FinCen Form 114, although prior to 2013 the reporting form was TD F 90-22.1. Form 114 is only filed electronically and due June 30th of the following year. The IRS requires certain accounts that have a value of $50,000 or more (for single taxpayers) as of the last day of the tax year (or $75,000 at any time during the year) to be reported on Form 8938, which is filed with your tax return.

Congress and the IRS have for some time been concerned with monies “hidden” in off-shore accounts, and so the penalties for failing to file these forms can be quite severe. Reporting requirements did exist in 1998 and as far back as 1970 when the Bank Secrecy Act was passed, and you should have been reporting this account (subject to the threshold requirements) since that time. Generally, any income from these accounts was always taxable and should have been reported on your tax returns. There is a program called the “Offshore Voluntary Disclosure Program” that may apply to your situation. More information is available here.

It may be in your best interest to discuss your options with a legal professional who is well versed in this area.

Deductibly Yours,

Dave

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David E. Du Val, EA
Chief Compliance Officer for TRI Holdco

 

Dave Du Val, EA, is Chief Compliance Officer for TRI Holdco. Inc., the parent company of TaxAudit, and Centenal Tax Group. A nationally recognized speaker and educator, Dave is well known for his high energy and dynamic presentation style. He is a frequent and popular guest speaker for the California Society of Tax Consultants, the California Society of Enrolled Agents and the National Association of Tax Professionals. Dave frequently contributes tax tips and information to news publications, including US News and World Report, USA Today, and CPA Practice Advisor. Dave is an Enrolled Agent who has prepared thousands of returns during his career and has trained and mentored hundreds of tax professionals. He is a member of the National Association of Tax Professionals, the National Association of Enrolled Agents and the California Society of Enrolled Agents. Dave also holds a Master of Arts in Education and has been educating people since 1972. 


 

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