Thursday, June 7, 2012

HUGE PENALTY IF YOU DON’T REPORT FOREIGN ACCOUNTS TO THE IRS

Many taxpayers may have investments in overseas.  If this investment is in the form of mutual funds or other passive holdings, there is usually no extra reporting to the IRS or Department of Treasury.  However you can accidently have an account that might trip you up.  For example, if you have a timeshare that you sell, even though the money normally goes right out of the account to your US account you are subject to the stringent reporting requirements.  Why?  For a brief time, maybe only one day, you have money from the sale in a foreign account.

Also, if you own a foreign bank account, securities account, etc. and the value of these accounts exceed more than $10,000, than this needs to be reported, both to the IRS and to the Department of Treasury.  The reporting to the IRS is included with your tax return and the reporting to the Department of Treasury is on a separate form that is due by June 30 of each year with no extensions and it must be received by that date, not postmarked.

If you forget to report these holdings, in many cases, the penalty for not reporting these accounts can actually exceed the value of the account, so it is extremely important to review these accounts.  The penalties are high because Congress wants to stamp down on foreign accounts so they set the penalty high.

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