If you are an international businessman or woman, then you may have offshore accounts. These accounts can be beneficial for many reasons. They allow you to keep your money overseas and invest in other countries without the risk of losing money due to currency fluctuations.
How does the IRS know that you failed to include an offshore account?
If you have a non-US bank account, then it is likely that the IRS will find out about this. This is because banks are required to report any activity that goes on in these accounts.
If they do not provide all of the information requested by the IRS, or if your financial statements aren’t complete and accurate, then they will be fined. So, instead of getting fined, they will provide the information they have on their customers through cooperation with the Department of Justice.
Consequences for not including an offshore account
However, there are some downsides to having these types of accounts as well. One downside is forgetting about them when filling out taxes. If this happens, there may be severe consequences for your business.
If you have failed to include an offshore account under Form 8938, there are a few things that could happen:
- You may face a civil penalty of $10,000.
- There is an additional fine of up to $50000 if you get an IRS notification and still fail to file your offshore account.
- You are at risk of forfeiting up to 40% of the undeclared amounts.
Apart from the fines, it’s also possible to be slapped with jail time if the IRS believes that you engaged in tax evasion.
Does the statute of limitation apply to offshore accounts?
Notably, the IRS has to pursue you for failure to file any offshore accounts with six years of the first default. Therefore, the IRS will only pursue enforcement against you for six years from when they found out. However, the government may bring other charges that would be incidental to the offense committed.
For example, in the United States v. Peter Canale, the defendant had argued that the indictment was statute-barred. However, the court refused that line of argument. Subsequently, the defendant was convicted, fined and jailed.
Therefore, it’s essential to check your records and any family members who may have offshore accounts that you are unaware of. If you notice any discrepancies, it is necessary to quickly take action and correct them to avoid any issues with the IRS.