Robert J. Fedor, Esq., L.L.C.

IRS laws related to foreign assets, complex and confusing

IRS tax codes and rules are notoriously complex. As a result, taxpayers often unknowingly fail to claim certain assets or file required forms. The more complex an individual's financial situation and structuring, the more rules and forms that must be followed and filed. Additionally, IRS tax codes and rules are subject to change at any time and, often, without notice.

Failing to be proactive and keep up on changes to U.S. tax codes and rules may result in an individual incurring hefty fines and penalties. In some cases, an individual may also unknowingly commit an alleged tax crime such as tax evasion or tax fraud and face criminal tax charges.

In recent years, the IRS has made many changes with regard to how foreign assets must be reported and claimed. In March of 2010, the Foreign Account Tax Compliance Act was officially enacted. Under the terms of FATCA, individual taxpayers and other financial institutions are required to report "foreign financial assets." However, as with most IRS tax codes and rules, the terms set forth in FATCA are complex and can easily be misunderstood or misinterpreted.

A 64-year-old Russian man, who became a U.S. citizen in 1986, recently "pleaded guilty to charges he failed to disclose a secret offshore bank account." The man first opened the Swiss account during the early 1980s. At that time, the man was still living in Russia. When he moved to the U.S. and eventually became a U.S. citizen, the man continued to fund and use the account until 2010 when the man closed the account.

Upon closing the foreign account, the man transferred the remaining assets into an account held in his wife's name. He failed, however, to file the required IRS Foreign Bank and Financial Accounts report for the years the account was open after the man became a U.S. citizen.

Today, the man must pay fines and back taxes in excess of $1 million. He also faces up to five years in prison for allegedly attempting to evade taxes.

Source: USA Today, "Businessman admits hiding $1.5M offshore," Kevin McCoy, May 27, 2014

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