Many individuals and businesses keep foreign bank accounts, especially when they hail from other countries. While keeping overseas bank accounts or assets is fine, you can run into trouble and incur significant tax debt if you disclose information regarding these foreign financial institutions to the IRS.
Although it is not illegal to conduct financial transactions overseas, activities of this nature can raise a red flag. If you were unaware of your potential responsibilities regarding the FBAR, we'd discuss who needs to file an FBAR and actions that you can take to resolve the issue if you didn't file an FBAR in the past.
Managing Tax Debt: What Is the FBAR?
The Foreign Bank Account Report, also known as the "FBAR," is a tax form that some people use to report their foreign financial accounts or assets to the Treasury Department.
Foreign reporting requirements apply to all U.S. taxpayers. Although many people believe their overseas assets and bank accounts aren't relevant when they file their tax returns, failing to do so can cause significant issues. If you do not report foreign assets and bank accounts on your tax return, you will be held responsible for the tax debt and any additional fines and interest.
When Do You Need to File an FBAR?
A U.S. taxpayer is considered any of the following:
A U.S. citizen, even if you currently reside in another country
A U.S. resident for any portion of the tax year
U.S. corporations, trusts, partnerships, and estates
While most of this information applies to individuals, remember that if you have a business, trust, or estate with foreign financial accounts and assets, you must also file an FBAR.
Tax Debt: Managing Delinquent FBARs
The tax deadline typically falls on April 15th, and you'll be hit with significant penalties if you haven't filed your FBARs by this date. Fortunately, a special program called the Streamlined Foreign Offshore Procedures Program makes it possible for you to file your FBARs at any time.
In order to submit your FBARs using this program, you'll need the following:
Six years back of FBARs
Three years of tax returns
Certification of non-willful conduct
The certification of non-willful conduct states that you didn't purposely evade filing your taxes and FBARs. If you've been filing tax returns and didn't know about the FBAR filing requirements, there are other delinquent FBAR procedures that will grant you an amnesty and ensure that you do not take on additional tax debt.
It may be beneficial to consult a lawyer about your situation to avoid incurring penalties and tax debt.
Manage Your Tax Debt with Ahmad Law
Sophia Ahmad Law, APC was founded in 2016 in the San Francisco Bay Area. We specialize in tax, corporate, and immigration law and represent both businesses and individuals locally, nationally, and internationally.
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