Forgetting to report a foreign bank account comes with its own set of consequences. It’s one of the first warnings that a tax attorney gives to new clients. Penalties add up, and the last thing you would want is to incur an avoidable debt. To put things into perspective, here are five consequences as a result of failing to report.
5. Tax Penalties
The penalties can start small but turn into a massive debt over time. The IRS enforces these penalties for violations against the tax code. The amount charged is irrelevant to the actual reason the penalties are charged. For the IRS, it is a way to create a paper trail of illegal activity by an individual. The longer you take to resolve the issue, the better a case the IRS can make.
Jail time comes with fines, and is a very real possibility for your situation. A lot of people think that it takes severe tax fraud to get put in jail. This is not true, as there are plenty of people serving short sentences for minor violations. Getting a week in jail for minor infractions looks bad on your personal record. Even if it is just a short visit, jail is never something you want associated with your identity.
3. Lawyer Fees
If the situation goes on long enough, lawyer fees will become a new debt added on top of the one you owe the IRS. Complicated financial matters require professionals that know how to handle the case. This is often the case when individuals try to take matters into their own hands. When it finally reaches the lawyers, they have a ton of extra work to fix before the financials are even considered.
Having too much paperwork is better than having missing paperwork. Gaps in your financial data is one of the worst positions to be in while under the microscope of the IRS. This is also hard to avoid if you haven’t been reporting data from foreign bank accounts. Any inaccuracies or missing information can be used against you in a negative way.
1. Your Entire Life Under A Microscope
Keep in mind that all of your finances will be looked at to find inaccuracies. There are people that ended up owing money from completely unrelated filings. This is a real possibility if you’ve already made the mistake of not informing the IRS about a foreign bank account. Instead of opening pandora’s box, correct the issue before it gets out of hand. Even if you miss the regular filing dates, there are extensions available to make up for the missed time. This is a helpful method for taxpayers with foreign bank accounts less than two years old.
There is nothing difficult about following through with your finances. Create a paper or digital trail, and keep it updated as time allows. Even if you fall behind, there will always be a suitable starting point. Once the habit of reporting finances develops, you’ll never have to worry about consequences again.