Failure to file an FBAR carries the potential for huge civil penalties

There are tens of thousands of Americans with offshore accounts, many of them in Singapore. As the 4th largest banking center, Singapore has become a popular tax haven for people trying to hide money from the government. That is about to change. If you have a bank or other financial account there and haven’t been filing FBARs with the IRS, watch out!

According to a Reuters article, banks in Singapore face an internal deadline of July 1st to identify and report accounts where there is a strong suspicion of tax evasion. Singapore is taking this action in anticipation of new U.S. and European reporting measures.

Owning a foreign account is not illegal under U.S. law as long as the account is properly reported. The Bank Secrecy Act requires American taxpayers (including dual nationals and resident alien “green card” holders) to annually file a Report of Foreign Bank and Financial Accounts (or FBAR for short.) Failure to file an FBAR carries the potential for huge civil penalties and even a chance of criminal prosecution and prison.

Although taxpayers are required to file FBARs annually, many do not. Sometimes, it is simply ignorance of the law. That often happens with immigrants and dual nationals who think they do not need to report if simply sending money “home.” Other times, taxpayers intentionally use offshore accounts as a way of evading taxes or dodging creditors.

Beginning next year, the new Foreign Account Tax Compliance Act (FATCA) requires foreign banks to identify accounts with ties to the United States. While the new FATCA requirements are more onerous and comprehensive than Singapore’s internal examination for suspected tax evaders, the handwriting is on the wall. Foreign bankers are being pushed hard to clean up their acts.

So what is Singapore doing to identify accounts that may be tied to tax evasion? While every bank will develop its own review process, common identifiers include the existence of nominee accounts and people holding large sums of money in Singapore without any business purpose for doing so.

Nominee accounts are on everyone’s radar screen these days. In order to conceal one’s identity, some taxpayers create a foreign trust or international business companies so that the money is held in a third party name. Unless there is a valid purpose for doing so, the IRS considers nominee accounts to be an affirmative act of evasion. Particularly if no FBARs have been filed.

While some Singapore banks may lose a few high net worth clients as a result of the review, most banks are expected to comply. The new guidelines from the Monetary Authority of Singapore carry criminal penalties and the loss of banking licenses for banks that don’t comply. By targeting the banks themselves, Singapore is showing it is serious about not becoming a haven for laundered money and tax evasion.

If you have an account at Bank of Singapore, DBS Bank, Singapore Island Bank, Far Eastern Bank, Oversea Chinese Banking Corporation (OCBC), United Overseas Bank, Islamic Bank of Asia or one of dozens of foreign banks with branches in Singapore, time is running out. While the first phase of review doesn’t require the banks to notify the IRS, Singapore is in negotiations with the IRS concerning FATCA implementation. Beginning in 2014, foreign banks will be required to share information with the IRS.

As several Americans have recently learned, moving money from one tax haven to another is also considered an affirmative act of tax evasion. Trying to stay ahead of authorities by moving an account from Singapore to some other country may buy some time but ultimately, its a ticket to prison.

We suggest you file and then opt out to go to appeals and lower the tax.