If you have money in an overseas account you are required by law to report it to the Internal Revenue Service (IRS). Willful non-reporting can result in stiff penalties that can run as high as 50% of the account value.
This significant penalty was recently challenged by an American who was fined $1.1 million for failing to report a Swiss bank account. The account holder argued that the penalty was in violation of the Eighth Amendment, which prohibits the federal government from imposing “excessive bail, excessive fines, or cruel and unusual punishments.” The imposition of the penalty was upheld in federal appeals court, and then made its way to the U.S. Supreme Court. However, the Supreme Court has refused to hear the case, thus upholding the lower court’s decision.
This case points out the importance of working with your tax and legal advisors to comply with the obligation to report overseas assets and accounts. Gray, Gray & Gray offers tax services for expatriates and for those holding foreign accounts. For more information, contact our Tax Department at (781) 407-0300.