Are You Sure You Have No Foreign Reporting Requirements?

Originally published in the Cedar Street Times

May 31, 2013

My grandfather’s sister once had the opportunity to go toe-to-toe with the 1920s gangster, Al Capone…or so goes the family story.  She had ordered a fancy car and Capone sent a couple of his henchmen to convince her that she should allow him to purchase it since he did not want to wait for another one to be built.   She politely refused, at which point, they said Mr. Capone would like to talk with her in person.  So she drove to his place in Palm Island, Florida to meet the notorious gangster.  She was a rather outspoken individual, and managed to come out with her car, and did not even have to dodge bullets on the way past the front gate!  Most people know the interesting story about Al Capone is that the Feds could never get him for bootlegging, racketeering, prostitution, or murder, but they nailed him for tax evasion and failure to file tax returns!

Fast-forward the better part of a century and we are battling terrorism.  Sometimes it is difficult to prove that a particular individual was involved in an act of terrorism, but there may be other ways to get them.  How about the failure to report foreign accounts or even having signature authority over foreign accounts while residing in the United States?

Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts is required to be filled out each year for anyone that has bank or financial accounts (or is an eligible signer on someone else’s foreign accounts) that were established in a foreign country that aggregate $10,000 or more.  The form is due to the Treasury Department each year by June 30th (one month away).  Note this form does not go with your tax returns to the IRS.  The IRS has its own two-year old Form 8938 Statement of Specified Foreign Financial Assets which is more geared towards tax evasion and is filed with your returns.  It covers some additional assets and has different reporting thresholds, so you and your tax professional should review that as well.

The penalties for failure to file Form TD F 90-22.1 can be pretty sickening.  Willful neglect to file the form is punishable with civil and/or criminal penalties.  Civil penalties could be the greater of $100,000 or half of the account value.  Criminal penalties could be $250,000 plus five years in prison, or $500,000 and 10 years in prison if you are also violating another law simultaneously.  Even non-willful neglect (a.k.a. – your ignorance) carries a penalty of up to $10,000.  These are also applicable per year you fail to report!

The IRS was recently seeking six years in prison for a 79 year-old widow in Palm Beach, FL for such issues and related failure to report the income from foreign accounts.  I think the key is to just make sure you file the forms as needed, and have a discussion with your tax professional or an attorney if you are unclear if your assets qualify you to file these forms.

Oh, and if you happen to know any terrorists that need to file, please don’t forward my contact information…

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

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