Posted by James Financial Services Inc

Offshore Account: When Is Having One Illegal?

Offshore Account: When Is Having One Illegal?

Many American citizens have businesses conducted on foreign soil. The business or other personal needs might warrant opening a foreign account to track their finances. As long as you are transparent about it, such activity is not illegal.

When will an Offshore Account Break the Law?

In operating an offshore account, your honesty matters. However, if you intend to commit tax fraud or evasion, then such an account becomes illegal. Tax evasion means you do not want to pay taxes on your income, yet every dollar you make is eligible for taxes as a US resident.

What is the need for an offshore bank account?

Provided you are careful, you will derive many benefits from using an offshore bank account for business and personal needs. For example, there will be a series of opportunities for investment alongside foreign exchange with the foreign account. There is also the benefit of exchange rates in a foreign country when you consider the US dollar. 

If you, however, have a foreign bank account, you need to take many precautions, like making sure Uncle Sam is aware. This involves filling the FBAR form with Uncle Sam and declaring any asset you have in an offshore account of more than $10,000. Again, you can get in touch with a tax professional if you are confused about the legality of your offshore account.


FATCA: How the Law Affects Your Offshore Account 

While federal law might seem scary and demanding, it is a reminder to avoid illegal things that might put you in trouble with the law. So here are some basics about what FATCA expect from everyone with an offshore account:

  • The IRS classifies Americans to people earning abroad, living abroad, and those in the country for this law. In addition, there is another classification for non-citizens. 

  • The basics of FATCA law are centered on reporting your taxes, not instructing you on the operation of your account. 

  • There are forms you need to fill to comply with FATCA:

  1. IRS Form 8938, and the least you can report is $50,000 for single filers. 

  2. Other forms from FinCEN, and you will see a list of their requirement here

  • Laws guiding the use of your account are that of the foreign country. As a result, be aware of the law in the country where you have an account. 

  • FATCA is majorly directed towards foreign banks and not Americans 

Offshore Bank Account is not a Form of Tax Evasion. 

Tax evasion is a crime but using an offshore account is not a crime. You, however, need to operate a foreign account with care. 

Some US citizens are guilty of not managing their accounts well, such that it sparked suspicion. Similarly, others have taken advantage of the asset protection capacity of offshore accounts for their selfish and personal gain. 

In 2019, the Department of Justice, US took severe action against many forms of establishing accounts that encouraged global citizens to outsmart Uncle Sam. Such actions preceded FATCA, and if you abide by it without any intent to outsmart the law, you will not be entangled with the law.


You Don't Need to Break the Law With Your Offshore Account. 

Since US laws do not say much on these accounts, complying with it is possible. So as long as you follow the advice given here, and you obey FATCA rules, alongside at least a tax lawyer or a CPA backing you, you can continue with offshore banking without fear. 

A good number of these banks will accept as little as $500. If you are worried about the legality, we hope this article has shed some light so you can start considering the options you have. 



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