Unreported Foreign Income: The Unreported foreign income & account rules are complex. The failure to comply may result in significant IRS fines and offshore penalties. In recent years, the Internal Revenue Service has taken an aggressive approach towards foreign accounts compliance and unreported foreign income. In fact, in 2010 the U.S. government changed the rules so that if a U.S. person has more than $5,000 worth of foreign income generated from various foreign assets, the statue limitations to enforce automatically jumps up to six years. When a person has one or more years of unreported income from offshore assets, accounts, or investments there are various amnesty programs available to them. These programs are collectively referred to as voluntary disclosure.
Unreported Foreign Income
IRS Unreported foreign income fines and penalties are on the rise. The United States’ general income tax rule is that all income is taxable – unless otherwise exempted or excluded. The rules apply to all U.S. persons, including:
- U.S. citizens
- Legal permanent residents
- Foreign residents who meet the Substantial Presence Test
Unlike most countries, the U.S. follows a worldwide income model. Therefore, any income earned overseas or in the U.S. is taxable, even if the U.S. person resides overseas.
Here are common types of foreign income:
A. Employment Income
When a person works or otherwise earned income overseas, that income is taxable in the U.S. The source of the income is not dispositive for tax rules. Rather, it is the U.S. person status.
B. Investment Income
Investment income is the most common type of unreported foreign Income. There are many different types of foreign investment income. Whether it is a foreign stock, bank account, investment account, life insurance policy, royalty, real estate income – or other type of foreign income – the baseline rule is that the foreign income is taxable.
Depending on the source of the income, and tax treaty rules, there may be exceptions, exclusions or limitations to consider.
Common types of investment income, includes:
- Capital Gains
Unreported Foreign Assets & Accounts
In addition to the unreported foreign income, the unreported foreign assets associated with the income will also be reportable. The failure to report the assets may result in significant fines and penalties.
Common Unreported Foreign Accounts and Assets
- Bank Accounts
- Investment Accounts
- Retirement and Pension
- Mutual Funds and ETF
In recent years, the IRS has increased enforcement of offshore reporting and income. The failure to report may results in penalties as high as 50% maximum value of the foreign account. The penalties can occur over several years. Still, the IRS voluntary disclosure program, streamlined programs, and other amnesty options can serve to minimize or avoid these penalties.
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.