At tax time, individuals here in Massachusetts and across the country are required to report all income received for the particular tax year. The IRS refers to this as voluntary disclosure. It applies not only to domestic accounts but also to foreign bank accounts.
If you failed to report income held in a foreign bank, it could lead to civil and/or criminal accusations. Under these circumstances, time is of the essence. In order for a disclosure to be considered voluntary, it must occur before the IRS approaches you about the funds.
As soon as you realize that you failed to report income held in a foreign bank account, it is vital to begin the voluntary disclosure process. The first step is to submit IRS Form 14457 in order to request preclearance to correct the error or omission. After receiving an approval letter from the IRS, you will then need to submit the appropriate documentation along with an explanation as to why you failed to disclose the income in the first place. Thereafter, the process moves forward similar to an audit, with your needing to answer the IRS’s questions and file amended tax returns for the time involved.
Of course, nothing is ever completely easy when it comes to dealing with the IRS, including when dealing with the failure to disclose funds in foreign bank accounts. Until the situation is resolved, you could face civil and/or criminal penalties. It would most likely be in your best interests to consult with a Massachusetts tax attorney who can help guide and assist you through this process.