Foreign Bank Accounts and Credit Cards
It all starts with a very simple question on Schedule B of a personal tax return where you are asked to check a box indicating whether or not you have signatory powers over a foreign bank account. Title 31 of the Code of Federal Regulations §103.24 requires any person subject to the jurisdiction of the U.S. "having a financial interest in, or signature or other authority over a bank, securities, or other financial account in a foreign country" to report that relationship to the IRS. Initially that is done by checking the box on the Schedule B as "yes". However, you must also then file by July 1st of the next year a Form 90-22.1 Report of Foreign Bank and Financial Accounts (the so called "FBAR" form) which is filed separately from the tax return, Form 1040.
The penalties for failure to comply are substantial. A "non-willful" violation can equal $10,000 per violation (31 U.S.C. §5321(a)(5)(B)(i)). However, a violation apparently can only be non-willful where the taxpayer marked the box on the Schedule B "yes" and reported all of the income on the 1040, cooperated with the IRS and no prior FBAR filing violations. Probably an unusual situation.
However, the more likely concern relates to so called willful violations and here the fine can be the greater of $100,000 or 50% of the amount in the account at the time of the violation and the IRS has a special statute of limitations allowing it to assess civil penalties for up to 6 years after the due date of the FBAR Form. In addition, the IRS can also request prosecution (under 31 U.S.C. §5322(a)) and here the criminal fines can range from $250,000 to $500,000 with imprisonment (depending on the charges) of 5 to 10 years maximum.
Following the IRS's forced cooperation of several foreign banks (primarily in Switzerland) and the disclosure of 1,000's of foreign bank accounts of U.S. citizens, the IRS' voluntary disclosure program went into effect. It required amending up to 6 years worth of tax returns, paying the back taxes and interest and several penalties and submitting the delinquent FBAR's. A substantial financial ‘hit' but presumably eliminating criminal prosecution. This voluntary program is not available to anyone that the IRS has already started to investigate for FBAR violations.