Problem is, according to Ed Slott, CPA and founder of Ed Slott and Co., “they cast such a wide net … they catch the little fish — people who weren’t doing anything wrong.”
A client of Slott’s was caught up in an IRS audit and faced stiff penalties about a year ago after having neglected a small but crucial part of his tax return. Slott says the client hadn’t told his accountant he had a bank account with about $3,500 in a foreign country.
As Slott explains, Schedule B asks you to disclose whether you have a bank account in a foreign country. “Almost every tax program defaults to ‘No,’ ” Slott said.
You must tell the government that you have this account, no matter how small, Slott says. “There’s nothing wrong with having the account,” he said. “It’s not disclosing it” that can cause problems.
And it did cause problems for Slott’s client. The penalties were massive, and the issue was solved only with the intervention of an attorney experienced in the tax situations of people who live out of the country.