Foreign Bank Accounts

Opting Out of the Offshore Voluntary Disclosure Program

Robert S. Barnett, MST, CPA, JD, and David Welch

The recent dissolution of Wegelin & Co., the oldest private Swiss bank, and the charge to profits taken by Bank Leumi, an Israeli bank, highlights the pressure being exerted on foreign banks and U.S. taxpayers. Resident taxpayers and U.S. citizens living abroad must report and pay taxes on all of their worldwide income. All U.S. citizens and resident taxpayers must also file a Report of Foreign Bank and Financial Accounts (FBAR), with respect to their “financial interest” in, or any signature or other authority over, a “foreign financial account” once the aggregate value of the taxpayer's foreign accounts exceeds $10,000 [see Internal Revenue Manual (IRM) 4.26.16, Report of Foreign Bank and Financial Accounts, at 4.26.16.3.1.1 and 4.26.16.3.4 (2008), also known as the FBAR Manual]. Substantial penalties apply for those who fail to report the existence of foreign accounts. Awareness of the reporting requirement is increasing, but many taxpayers still do not comply.