As your authorized legal adviser on the matters that you have disclosed, I have attached the necessary legal challenges that you are faced with and finally the best possible way of avoiding legal action by complying with the set out legal regimes.
Facts
Reading the information that you have availed in regards to receiving a w9 from your foreign bank, this may elicit many questions as may relate to the reasons of receiving such a letter as well as the consequences of receiving such a letter. However, I will guide you into pursuing the best option to explore since you have received the letter.
The reason why your foreign bank has sent you a letter indicating that you are required to fill a w9 form is because they want to find out whether you have disclosed the fact that you hold a foreign account to the Internal Revenue System (IRS). In this regard, your failure to report your income from the your foreign bank account there may cause the IRS to impose a civil examination or a criminal investigation as they may sight a case of tax evasion when your foreign bank submits the information to them. The federal government is very strict with its person’s and their income disclosures because it considers tax evasion as a very serious crime. It is in this regard, that it is essential that you comply with the filing requirements of Financial Crime Enforcement Network (FinCEN) form 114 as well as the (FBAR) Report of Foreign Bank and Financial Accounts (M. Barker).
Statement of Law
According to the Foreign Account Tax Compliance Act (FATCA) enacted by congress and which began taking effect on July 1, 2014, foreign financial institutions are required to comply with certain stipulated annual reporting requirements, and consequently enter into information sharing agreements with the United States in regards to their U.S. account holders. Additionally, U.S. tax holders are also required to report on various foreign assets on a Statement of Specified Foreign Financial Assets (Form 8938) annually together with their personal tax returns according to the amended Title 31 U.S.C. §5314(a), which requires that a resident or citizen of the United States keep records and/or file reports if they transact or maintain a relationship with a foreign financial institution, and is under the direction of the Secretary to ensure that this is done.
Further, each U.S. person who has a financial interest in, or signature or other authority over, one or more foreign financial accounts that has an aggregate value greater than $10,000 at any time during a calendar year is required to confirm the existence of the foreign account on Schedule B of Form 1040, and on similar schedules of other federal tax forms, as well as report the foreign accounts on FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR), formerly form TD F 90-22.1 which is due on or before April 15 of the year immediately following the calendar year being reported (Internal Revenue Manual 5.21.6.2).
The IRS is also under the discretion to impose penalties on those who fail to file the FBAR, in which it can impose one of two penalties: A non-willfulness penalty, not to exceed $10,000, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements (IRM §4.26.16.4.4) or A willfulness penalty may be imposed on any person who willfully fails to file the FBAR, with the ceiling on the penalty being the greater of $100,000 or 50% of the balance in the account at the time of the violation (IRM §4.26.16.4.5.1).
The IRS provides several options that are aimed at helping U.S. taxpayers that have not adhered to all tax disclosures to avoid criminal charges.
Streamlined Domestic Offshore Procedures are available to the U.S. taxpayers for those that have not disclosed their income from a foreign financial asset and pay the tax thereof as a requirement by law, and who have further failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) in regards to the financial asset and must prove that it was as a result of non-willful conduct.
Offshore Voluntary Disclosure Program (OVDP) is a program that is designed to assist those U.S. taxpayers that have undisclosed foreign bank accounts as well as those having not reported income from any foreign financial asset to comply with the U.S. tax laws.
Discussion
As detailed above, the federal government is very strict on those U.S. taxpayers that do not disclose information regarding foreign accounts as well as incomes from foreign financial assets. Bearing all the information provided above, you have clearly not disclosed information regarding your Malaysian bank account and the interest earned form that saving account, which would have a final balance of $ 32,018.64 using the current exchange rate.
As your legal advisor, I would recommend that we enroll in the Offshore Voluntary Disclosure Program because proving a non-willful FBAR violation will be difficult and may end up being financially devastating. Using the OVDP may help you eventually avoid larger penalties by only incurring an accuracy related penalty of 20 percent of the taxes due, and a civil penalty equal to 27.5 percent of the highest aggregate value of your foreign bank account during the eight-year period (M. Moskowitz and D. Diosdi 10, 11).
For any further clarifications or discussions kindly schedule a meeting for more elaborate discussions.
Works Cited
M. Barker, Joel. "FBAR Compliance". Journal of Accountancy. N.p., 2016. Web. 13 June 2016.
M. Moskowitz, Stephen and Anthony D. Diosdi. "A Closer Look At The Non-Willful FBAR Penalty".California Tax Lawyer (2012): 10, 11. Print.
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