Don't Forget to Report Foreign Bank Accounts
By Liz Zitzow - According to Forbes, Igor Olenicoff, one of the 400 richest people in America, is paying some $52 million in back Federal taxes, interest, and penalties arising from offshore interest and investment income which he neglected to mention to the IRS. Woo hoo!
Igor isn’t alone. Many Americans think that the IRS won’t catch up to them regarding their offshore income, because there aren’t any reporting requirements for the offshore bank to tell the IRS. Not true. Just because there isn’t a 1099 issued, doesn’t mean the IRS can’t find out about it. One way the IRS finds out is the use of credit cards and debit cards that are linked to the offshore bank account, as most of these are processed by VISA and Mastercard, which use a US-based clearing system. Another way is the use of an American mailing address. Yet another way is by reviewing the transfers between a taxpayer's US bank accounts and offshore accounts.
A real problem I have with new clients is that they don’t want to tell me about those offshore accounts because they figure what the IRS doesn’t know, they don’t need to know. It’s our job to stress to our clients the importance of being honest and reporting the income.
The next time you meet with a client who has relatives and family abroad, drill them as to whether they have signature authority over any overseas accounts, even if they don’t own the underlying asset. If they do, report the interest on Schedule B and file Form TD F 90-22.1 if the offshore accounts are over $10,000. You can then let your client know you saved them $100,000’s in penalties for failure to file Form TD F 90-22.1, and voila! You’re the hero who saved the day.