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Zaher Fallahi, Tax Attorney, CPA, Income from Abroad is Taxable

Posted by: Zaher Fallahi
Posted On: Dec 12, 2016

Many U.S. citizens and resident aliens receive income from foreign sources. There have been recent reports about the interest of the IRS in taxpayers with accounts in foreign countries. The IRS reminds you to report your worldwide income on your U.S. tax return.

If you are a U.S. citizen or resident alien, you must report income from all sources around the world. This is true whether or not you receive a Form W-2 Wage and Tax Statement,  a Form 1099 (Information Return) or the foreign equivalents.  In addition, if you are a U.S. citizen or resident alien, the rules for filing income, estate and gift tax returns and for paying estimated taxes are generally the same whether you live in the U.S. or abroad.

Hiding Income Offshore

Not reporting taxable income from foreign sources may be a crime. The IRS and its international partners are pursuing those who hide income or assets offshore to evade taxes. Specially trained IRS examiners focus on aggressive international tax planning, including the abusive use of entities and structures established outside the US.  The goal is to ensure U.S. citizens and residents are accurately reporting their taxable income and paying the correct tax.


Foreign Financial Accounts

In addition to reporting your worldwide income, you must also report on your U.S. tax return whether you have any bank, investment or other financial accounts overseas.  The Bank Secrecy Act (BSA) requires you to file a Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, formerly Form TD F 90-22.1), if

  1. a) You have financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and
  1. b) The value of all foreign financial accounts in the aggregate exceeds $10,000 at any time during the calendar year.

More information on foreign financial account reporting requirements https://zflegal.com/services/report-of-foreign-bank-and-financial-accounts-fbar/

Consequences for Evading Taxes on Foreign Source Income

You will face serious consequences if the IRS finds you have unreported income or undeclared foreign financial accounts.  These consequences may include additional taxes, substantial penalties, interest, fines and imprisonment.

Consequences for Evading Taxes on Foreign Source Income

If you have any undisclosed foreign financial account and would like to become compliant with the US tax law, see https://zflegal.com/services/2014-offshore-voluntary-disclosure-program-ovdp/

Reporting Promoters of Off-Shore Tax Avoidance Schemes

The IRS encourages you to report promoters of off-shore tax avoidance program.  Whistleblowers who provide allegations of fraud by taxpayers to the IRS may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

 Zaher Fallahi, Tax Attorney, CPA, advises taxpayers with the IRS representation, FBAR and Offshore Voluntary Disclosure Program (OVDP). Telephones:  (310) 719-1040 (Los Angeles), ( 714) 546-4272 (Orange County) or e-mail taxattorney@zfcpa.com