Will the IRS Find Out if You Don’t Disclose Your Offshore Accounts on an FBAR?

If you own offshore accounts with an aggregate value of $10,000 or more, you are required to report all of your offshore accounts to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) using the Report of Foreign Bank and Financial Accounts (FBAR). The Internal Revenue Service (IRS) enforces FBAR compliance, and filing an inaccurate or delinquent FBAR can lead to steep IRS-imposed penalties.

But what if you don’t disclose your offshore accounts at all? Will the IRS find out? As Virginia international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, the short answer is “Yes.”

The IRS Can Find Out About Your Offshore Accounts if You Don’t File an FBAR

The IRS can—and most likely will—find out about your offshore accounts if you don’t file an FBAR. Along with requiring U.S. taxpayers to disclose their qualifying offshore accounts, the federal Bank Secrecy Act (BSA) requires foreign banks to disclose their U.S. customers’ offshore accounts as well.

If your bank discloses an offshore account to the IRS and you do not, this can have serious consequences. Even though the IRS may have the information it needs to assess your tax liability, you can still face steep penalties as a result of your failure to file an FBAR. Non-willful FBAR violations carry civil fines in excess of $10,000, while willful FBAR violations carry civil fines in excess of $100,000 and the possibility of criminal prosecution.

Important: Filing an FBAR Isn’t Necessarily Your Only Offshore Account-Related Obligation

While we’re on the subject of offshore account disclosures, it is important to keep in mind that filing an FBAR isn’t necessarily your only offshore account-related obligation. Many taxpayers must file an FBAR with FinCEN and file IRS Form 8938 with their annual returns. The obligation to file IRS Form 8938 exists under the federal Foreign Account Tax Compliance Act (FATCA). Similar to BSA violations, FATCA violations carry the potential for both civil or criminal penalties depending on the specific circumstances involved.

What If You Haven’t Filed an FBAR (or IRS Form 8938)?

Given the risks of noncompliance with the BSA or FATCA (or both), what should you do if you haven’t filed an FBAR or IRS Form 8938 in a prior tax year?

In this scenario, you do not want to wait for the IRS to find out. At a minimum this will lead to civil penalties—which may continue to accrue during your period of noncompliance. However, if you knowingly fail to correct an offshore disclosure violation, this can potentially create criminal exposure as well. Rather than waiting, you should work to resolve your offshore disclosure violation proactively, which will most likely involve submitting either a streamlined filing or voluntary disclosure.

Get Help with Offshore Account Disclosure Compliance from a Virginia International Tax Attorney

If you need to know more about how to remedy an offshore account disclosure violation, we encourage you to contact us for a confidential consultation. To request an appointment with Virginia international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 703-752-3752 or send us a confidential message online today.