If you are a signatory on an offshore or foreign bank account but you do not earn income from that account, you likely do not think about it very often. Many family members have joint accounts with multiple signatories and non-beneficiary owners often have no actual transactions with the account over the course of the year.
If you find yourself in this situation, it may come as a shock to you that you could face large civil penalties for a failure to fulfill obligations to the Internal Revenue Service. Recently, Forbes wrote an article warning signatories about the potential tax consequences that signatories could face if they do not proactively report the offshore account that has their name on it.
Signatories who have not complied with IRS reporting rules need to consult with a New Jersey IRS attorney for help understanding their obligations and exploring legal options to remedy past reporting failures with the IRS.
Signatories Must File Annual FBARs
The United States government requires offshore account holders to submit an annual Report of Foreign Bank and Financial Accounts (FBAR). Beneficial owners of accounts, or owners who make money, are required to both file an FBAR and declare interest and other income earned on their tax returns. Those who are just signatories and who do not receive funds from the account will not need to declare or pay taxes on income. However, they do need to file FBARs.
FBARs must be filed any time offshore accounts have an aggregate value of $10,000 or more over the course of the year. If you are a signatory on one or more offshore accounts that reach $10,000 even briefly during the year, you need to alert the IRS to the existence of the accounts by filing your FBAR. Every single signatory has this reporting obligation.
There are very serious consequences associated with not filing FBARs, and these consequences can be even harsher than the typical penalties usually associated with tax evasion. Non-willful violators who did not intentionally make the choice to fail to report offshore accounts can face a civil fine of as much as $10,000 per year per account. This has draconian results. A signatory whose name was on three accounts could be fined $30,000 in civil penalties for one year in which his name was on accounts that he or she probably rarely thought of and never earned a single dollar of income on.
If the IRS considers your failure to file FBARs to be a willful failure, then the penalties are even more grave. You could be charged with a crime that has a potential penalty of as much as 10 years of prison time. Civil penalties and fines can be assessed at a rate of 50 percent of the offshore account. Some investors have had penalties exceed the value of accounts, including a Florida investor who faced fines of 150 percent of the offshore account’s value.
There are voluntary disclosure programs and you may wish to pursue your options for avoiding nondisclosure penalties by speaking with New Jersey tax lawyer Kevin Thorn of the Thorn Law Group right away.