A Florida widow has inherited $42 million from a Swiss bank account and the IRS is treating this case very harshly, as it had lost out on taxes from 2007-2011. The penalty is 50% of the highest balance ($21.5 million) and up to 6 years in prison, says Robert Wood, tax lawyer with Wood, LLP in San Francisco.
Wood says that this case reminds us that it is a good idea to disclose foreign bank accounts, as the rules for permanent U.S. residents are to report worldwide income and separate disclosure forms called F Bars, which are separate from tax returns. They apply even if someone doesn't own the money but if they're merely a signatory.
The hard part, Wood believes, is the transition from being undisclosed to coming into compliance and if there's a way to do it, that's "less frightening and less expensive" than going through the volunteer disclosure process. Wood says that usually, the answer is no but in some cases there may be. Wood says that the IRS is good at reminding people, especially around tax season, that these things are serious. It is important to seek the proper advice in these cases, says Wood, so as to not end up like this Florida widow.
Attorney Robert Wood, of Wood, LLP in San Francisco is a featured commentator with The Tax Law Channel, part of The Legal Broadcast Network. For more information on his Forbes article on this case, click here.