Most people would rather pay a visit, fee and all, to the proctologist’s office than endure an IRS audit. In fact, many would agree that proctologists are kinder and friendlier than the average IRS auditor. Knowing the red flags that trigger audits may not prevent all audits, but it can help you invite less IRS scrutiny or unwanted attention.
In recent years, the IRS has turned its focus to US accounts in foreign banks. Where US citizens once set up tax shelters by banking in places like Switzerland or the Cayman Islands, new laws now levy substantial fines for failing to report holdings in foreign banks.
What has changed?
The Foreign Account Tax Compliance Act was created. It requires overseas banks to provide the IRS with information on American accounts worth at least $50,000. The law doesn’t simply involve accounts that have $50,000 in them at tax reporting time, but each account that has contained $50,000 at any time during the tax year.
Of course, you’re required to report foreign bank accounts that have totaled $10,000 or more at any one time during the previous year via FinCEN Form 114. If you have even more financial assets offshore you may need to attach IRS Form 8938 as well. This is necessary to avoid a forceful, and costly, smack to the hand by the IRS.
Taking the right action now can save you the painful experience of an IRS audit in addition to potentially substantial penalties and fines. It’s definitely in your best interest to avoid waving this particular red flag in front of the bull the IRS has become in recent years.
The penalties of undisclosed (i.e. hidden) offshore accounts are no small potatoes; those that willfully fail to disclose overseas assets include a hefty fine of $100,000 or 50 percent of the balance, whichever is greater.
If you have any questions about the potential of an audit for your dental practice, contact Bassim Michael, Dental CPA, at bmichael@bmichaelcpa.com.