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Willful Penalties

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Willful Penalties

Disclosing foreign assets on your taxes is imperative. According to the IRS webpage, taxpayers that hold specified foreign assets with a combined value beyond $50,000 are now required to  report these funds on the new Form 8938. You are required to report these foreign assets through the new form and attach it to your annual income tax return. Failure to report these earnings and assets could be interpreted as a willful violation of tax law, and may result in a sizable Willful Penalty. 

If you voluntarily and intentionally violate an established legal duty, then in the eyes of the law, you did so willfully. United States Code defines a willful penalty as the greater of $100,000 or half of any and all accounts that were or are non-disclosed. This penalty is charged per year and for each year that falls under the open statute of limitations. Legally, the IRS can fine you for up to 300 times the balance of any account that violates disclosure regulations.

Typically, the fine ultimately amounts to half of the combined balance of all delinquent and undisclosed accounts within the year in question. The final decided penalty will never be greater than the highest combined balance, but such penalties are still to be avoided as they could be detrimental. The Eighth Amendment contains some language relating to “excessive fines” and the protection against them for US citizens, but the definition of “excessive” has been challenged and could be subjective. The IRS has ambiguously recognized this amendment, and adapted accordingly; typically, they limit their implementation of certain penalties to a single instance (or at most two instances) within a given collection period, so as to avoid excessive fining. Nevertheless, these penalties are still substantial, and have the potential to run you financially.

There are several ways to clearly report your foreign assets on your annual income tax, so as to avoid these damaging fees and penalties.Generally, all holdings must be disclosed and documented through a Report of Foreign Bank and Financial Accounts. This applies if your holdings have a total value that exceeds $10,000, and taxpayers with such holdings will no doubt be familiar with FBAR and its regulations. 

Too often, high-earners and diverse investors innocently overlook the FBAR, as it is not an option on most commercial tax filing softwares. The Financial Crimes Enforcement Network has its own specialized process for filing the FBAR, known as Report 114. Remember, you are required to report bank balances that exceed $10,000, but you do not necessarily pay taxes on that amount.

Consult tax professionals to gain a full understanding of which accounts need to be reported, and this will help you avoid penalties. A willful penalty could amount to half of what you failed to disclose. The best practice is to contact a tax professional, and disclose any accounts for full transparency. Dimov Tax is your comprehensive financial solutions partner, and will help you compile every necessary detail and form to avoid penalties and excessive fees from the IRS. They work with many high-profile investors and earners, and provide quality service and reliable protection against misfilings and bookkeeping errors. Your account portfolio deserves the best protection and filing services, and Dimov will prepare you for any audit or analysis to ensure the best, most lucrative results. File your taxes with Dimov Tax Specialists, and avoid willful penalties when disclosing foreign assets. Learn more about how to submit an FBAR, file through Report 114, and disclose all account balances to avoid willful or un-willful penalties.

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