JacobsReport
on International Financial Planning

The JacobsReport is a free email newsletter that will discuss investment, business, tax and financial planning in an international context. Reports will be issued as the author's work schedule permits, but will usually be issued on a weekly schedule.

Unreported Foreign Income and Financial Accounts

QUESTION: If someone (US citizen) invests in a privately held investment company in Europe, keeps the proceeds from the investment company in a European bank account, and never repatriates that money to the US. (the money is in Euros)-What are the tax implications? Also the private company would not be issuing 1099's or any similar tax statements. I have heard IRS has different rulings for foreign bank accounts under USD10K and another for larger holdings.

REPLY: The tax implications are that the IRS would treat a willful failure to report the income as tax evasion and would treat the willful failure to report the existance of a foreign account (or combination of accounts) of more than $10,000 as subject to a willfull failure to file penalty of up to $500,000 and imprisonment of up to five years.

In addition, the statute of limitations does not expire on tax fraud and the statute is extended to six years for a failure to file the foreign bank account disclosure form. And, the tax evasion penalties have little to do with the amount of income that is not reported.

But your question has more to do with how can they catch you if there is no reporting of the accounts or of the income. I've written an extensive article about the bank secrecy myth and about how people who choose not to comply with the U.S. tax laws can get found out. It's on my web site at http://www.offshorepress.com/secrecy-myth.htm

Even if you get away with it, you will have a very hard time getting that money into the hands of your spouse or your children after you are gone from this earth. You might as well instruct the offshore banker to write a check to a foreign charity because if the money comes back to the U.S., your heirs will have numerous reasons to burn you in effigy for the aggravation you will cause them. And if you let your spouse or children in on your little "secret", you had better
hope that your marriage is very solid and that your kids and their spouses really, really love you.

For those who really hate to pay income taxes to the U.S., one alternative is to expatriate and move to a tax haven. For those who are not ready for such an extreme step, another alternative is to spend the time and money to engage in tax planning to reduce your taxes. One way to start doing that is with our book, Legal Ways to Save Taxes Offshore and Onshore.
(http://www.offshorepress.com/legalways2save.htm)