What Needs To Be Disclosed To The IRS? [Infographic]

Image of a global finance credit card, FBAR

Financial interests in foreign bank accounts, securities, brokerage accounts, mutual funds, and other types of foreign accounts must be reported to the IRS by filing an FBAR with annual tax returns.

Disclosing Foreign Assets

United States tax laws require U.S. citizens and permanent residents to disclose financial assets in offshore and foreign accounts if the total value of financial assets exceeds $10,000 at any time during an annual tax year. Financial assets in foreign bank accounts, securities, brokerage accounts, mutual funds, and other types of foreign accounts must be reported to the IRS. Assets are typically reported along with annual tax returns by filing an FBAR, a Report of Foreign Bank and Financial Accounts.

Civil penalties for failure to file required FBARs are $10,000 per return. Upon notification by the IRS of filing delinquency, a taxpayer has up to 90 days to file and pay taxes and civil penalties. If a taxpayer does not respond within 90 days, an additional $10,000 per month is imposed on each tax return due, resulting in civil penalties that can reach a maximum of $50,000 per tax return. If returns are filed with inaccurate information or payments, civil penalties of 20 to 40 percent may be imposed. If failure to file an FBAR is determined to be fraud, civil penalties up to 75 percent of the unpaid tax may be imposed by the IRS. Taxpayers who don’t file annual tax returns are subject to tax audits, as well as increased penalties.

The Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program (OVDP) is an IRS program that’s designed to help taxpayers who owe back taxes and civil penalties on foreign accounts. The main goal of ODVP is to assist taxpayers who have avoided disclosing foreign assets with the intention of avoiding or paying taxes. The program focuses on taxpayers who may face substantial civil penalties and/or criminal charges due to willful failure to report foreign financial assets and pay taxes that are due.

Reporting financial interests in foreign accounts can be complex, especially when a taxpayer has multiple accounts. To address taxpayer concerns, the IRS publishes a list of ODVP questions and answers that provide valuable information on the program. The IRS encourages taxpayers to use the ODVP program to become compliant with tax laws. Information is provided that helps taxpayers to calculate taxes owed on foreign assets and resolve all offshore tax issues.