Have accounts overseas? Think they’re hidden from the U.S. government? Think again.

As many Americans with foreign bank accounts are startled to discover, the U.S. government can and will find your bank accounts and use information from your bank to confirm your compliance with U.S. tax law. From millions in the bank to a few dollars sitting in another country, there are few limits to how far the government is willing to go to collect what it believes it is owed.

Whether you’re considering opening an offshore account to hide assets – an unwise move – or have already opened an account overseas, here’s what you need to know about the reach of the IRS.

Federal Taxes and You

Unlike the tax authorities in many other countries, the IRS does not care where you live or where you earn a living. If you are a citizen or permanent resident of the U.S., you’re required to report all of your income, regardless of where it came from or where you are keeping it. While the Foreign Earned Income Exclusion often precludes payment of tax on most or all of this income, the IRS still wants to know about it, and you’re still obligated to tell them.

What Is FATCA?

If you have a foreign bank account, FATCA is an acronym you should know, and know well. As unpleasant as it might sound, FATCA can wrap you around the IRS axle and grind you to dust. More formally known as the Foreign Account Tax Compliance Act, FATCA was passed in 2010 and is a federal law that mandates non-U.S.-based financial institutions to comb their records for accounts maintained by U.S. account-holders and report all findings back to the government. This Act also requires U.S. citizens to report international holdings to the IRS. If you think your bank has your back and won’t disclose anything, you may be in for a surprise – many foreign financial institutions are more than willing to turn over their records.

Why are foreign banks succumbing to Uncle Sam’s heavy-handed demands to turn over U.S. account-holder information? If you suspected the almighty dollar to be at the heart of it, you’d have guessed wisely. Non-compliant foreign financial institutions face a mandatory 30% withholding tax on payments from U.S.-based financial institutions. Faced with the choice between divulging account-holder information or paying a 30% withholding tax on payments they receive from the United States, most financial institutions have chosen the former, thus throwing their U.S. clients under the bus.

Even if you are sure that your bank is one of the tight-lipped ones, that may not matter; the government also has access to a wealth of information on its citizens’ holdings, including over 50,000 instances of voluntary disclosure, whistleblowers, banks under investigation, and government witnesses.

The bottom line? As a U.S. citizen, resident, or entity, you can have as many overseas bank accounts as you’d like if you properly disclose them, preferably by checking the “Yes” box on Schedule B and, if necessary, filing Form 8983 with your tax return.

The Importance of FBARs

If you have assets of $10,000 (U.S.) or more, you may also be required to file an FBAR, which has now been rebranded as Financial Crimes Enforcement Network (FinCEN) 114. If you’re wondering why both forms are required, that’s because FinCEN 114 is not actually a tax form at all; it’s filed with the Department of the Treasury, not the IRS.

If you’d rather just ignore the FBAR requirement, you may find yourself in hot water before you know it. Tax evasion can lead to five years in prison and a $250,000 fine, while failing to file an FBAR entirely can lead to ten years in prison and a $500,000 fine. Argue a non-willful violation? That comes with penalties, too, with fines up to $10,000.

Willful violations are even worse, with a maximum fine of the greater of either (a) $100,000 or (b) 50% of the closing balance in the account as of the last day of filing the FBAR. As if things couldn’t get any worse, FBAR penalties are determined per account, and not per unfiled FBAR. This means that a taxpayer with multiple unreported accounts in a single tax year could be subject to multiple FBAR penalties. A quick and dirty example demonstrates how Draconian this penalty scheme actually is. Assume John fails to report five foreign accounts in 2013. He would then be subject to five separate FBAR penalties in that year alone.

The combination of the six-year statute of limitations for assessing FBAR penalties coupled with the fact that FBAR penalties are determined per account packs a “one-two” punch that can catapult a taxpayer’s FBAR liability into the penalty stratosphere.

In short? Don’t neglect the filing requirements – ever.

The Dreaded FATCA Letter

If your bank receives an inquiry from the U.S. government under FATCA, there’s a good chance you’re going to hear about it in the form of a letter. Your bank will likely reach out to you, disclose the contact made with the government, request information about your compliance, and potentially provide a form W-8 or W-9 for you to fill out.

Should you receive a letter, it’s important to realize that this is not an idle threat. U.S. taxpayers residing overseas should fill out all required information as soon as possible and return the letter to the bank. If you choose to abide by the law and send information back to the bank, your responses will be forwarded to the IRS. If you choose not to fill out the letter, all the information available to the bank will be sent to the IRS anyway, and your account status may be disrupted.

However, if you send the letter back but were previously unaware of your obligation to disclose your bank account, there may be some extra hoop-jumping you should keep in mind.

Amnesty for Violations

If you’ve neglected to follow the law regarding your foreign bank accounts prior to this point, the safest option is to join a U.S. amnesty program. Currently, there are two primary options – Streamlined and OVDP. OVDP, or Offshore Voluntary Disclosure Program, requires payment of back taxes and a miscellaneous offshore penalty equal to 27.5% of the highest year’s maximum aggregate balance in the foreign bank accounts over an eight-year lookback​ period. In exchange, the IRS will recommend that the case not be referred to the U.S. Attorney’s Office for prosecution, essentially immunizing the taxpayer from prosecution.

If OVDP has piqued your interest, you must act fast as the IRS announced that it will be discontinuing their flagship program on September 28, 2018 (i.e., this program will come to a close in September 2018). After September 28, 2018, the Streamlined amnesty opportunity will be your only choice. An option designed for those who are not willful and have already come under civil investigation for any prior year returns, the Streamlined process can help you go through the motions to bring your reporting up to snuff.

While there’s a risk of legal action that doesn’t exist with OVDP, the monetary penalties associated with this path pale in comparison to that of the OVDP. For example, while the streamlined domestic miscellaneous offshore penalty includes a broader base of foreign assets than the miscellaneous offshore penalty under OVDP, the streamlined domestic miscellaneous offshore penalty is merely 5 percent of the highest end-of-year aggregate balance of the taxpayer’s foreign financial assets that are subject to the penalty. And if you’re making a streamlined foreign submission, it gets even better than that. Under streamlined foreign, there is no miscellaneous offshore penalty – a veritable windfall for the wayward taxpayer.

If you’re thinking about quietly filing amended returns and past-due FBARs without the government’s knowledge, don’t. Known as a quiet disclosure, this process can actually raise red flags, immediately notifying the IRS of your lack of compliance and potentially triggering a civil audit or criminal proceeding the likes of which could be more painful than a root canal, not to mention which could land you with steep fines – or worse. As is virtually always the case when dealing with IRS, do things by the book. After all, you probably won’t like what happens should you take a chance and go off script.