Foreign Bank Accounts, Offshore Bank Accounts, IRS and 5 Year Prison Term

The Tax Code Reads as Follows:

Any United States person who has a financial interest in or signature authority, or other authority over any financial account(s) in a foreign country is required to file a Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

A potential nightmare all begins with Line 7 of Schedule B.

Line 7 of Schedule B directly ask a taxpayer if he/she have a foreign bank account. It then tells you the filing requirements for Form TD F 90-22.1. The next question ask if Yes enter the name of the foreign country.

Line 7 of Schedule B is at the bottom of the page, most Americans and a lot of Tax professionals just breeze right past it and continue with the return.

RED FLAG: Failure to file a TD-90-22.1 is a FELONY, punishable by a 5 year prison term.

If you are unsure of how to handle Line 7 of Schedule B, continue to read this article and then contact a Tax professional as soon as possible.

No extensions are allowed for this form. Taxpayers who have earned interest in Canada must comply as well.

There are ways for IRS to find out if you have an offshore bank account or have a financial interest in a foreign account.

One way for IRS to find out, is if you spend more then you report as income. Often times people do this by using a credit card associated with an offshore account or a foreign account.

Another way for IRS to find out is: IRS pays informers to report tax cheaters. Informers can use Form 211 to report tax evasion and receive 8% of the first $100,000 IRS collects from the tax cheater. Of course IRS investigates the informer as well.

Keep in mind that Line 8 of Schedule B has consequences as well. If you have a foreign Trust, you are required to complete Form 3520.

It is highly recommended that if you must complete Line 7 or 8, of Schedule B, that you contact a Tax Attorney or an Enrolled Agent.

The Way In Which to Comply With the Foreign Accounts Law: Check the block on Schedule B of Form 1040 Complete Form TD F 90-22.1 Mail the completed form by June 30th to the US Dept of Treasury, PO Box 32621, Detroit, MI 48232-0621