When Led Zeppelin sang about “Going to California,” they were probably blissfully unaware of the potential tax consequences on this side of the pond.
If you cannot come to an agreement to resolve your FBAR issue during the IRS examination stage, you may have a few options. The options available to you will depend on where you are in the penalty process, whether you were found to be in willful violation, and your history of compliance.
Robert Wood, tax expert and frequent contributor to Forbes.com, wrote that “many would-be former Californians have unrealistic expectations about establishing residency in a new state. They may have a hard time distancing themselves from California, and they may not plan on California tax authorities pursuing them.”
Often, taxpayers may neglect to comply with the tax code for reasons that have nothing to do with efforts to evade taxes. That is understandable. International tax laws, especially those associated with FBAR, are complicated and confusing.
This is where things can go south quickly, if you knowingly did not file a FBAR. This is known as a willful violation and the sanctions can be severe.
In previous chapters, I have walked you through specific forms you need to file if you have any financial ties to any foreign entities, whether they are business or personal. International transactions are already on the IRS’ radar, so you do not want to do anything to move closer to their bull’s eye.
Here is yet another form you need to file surrounding any foreign accounts or other assets you may own or be associated with. This one deals with foreign corporations. If this speaks to you, keep reading.
There are many information forms associated with international taxes and we are not sugar-coating this — they are complicated. To add to the angst, failure to file these forms or not file them on time can incur hefty penalties.
If you are a foreign business or person that does business with the U.S., then you are subject to U.S. income taxes. Some examples would be if your business has an office that generates income located in the U.S. or if a company owns rental property in the U.S. from which it derives income.