If you have any type of ownership or interest in income generating assets or businesses that are located overseas, you may be subject to the IRS’ disclosure requirements for foreign accounts, at a minimum. It is important to realize that if you are a U.S. tax resident, your worldwide income is table in the U.S. Failure to report our worldwide taxable income and provide all required foreign information reporting can quickly escalate into criminal tax and foreign information reporting exposure. Failure to abide by these requirements will ordinarily, in best case scenarios, merely result in stiff civil penalties, even in cases of honest mistakes.
If you have failed to report taxable offshore income and failed to provide the required foreign information reporting, you might be wise to apply for admission into, the delinquent foreign information reporting program, domestic or expatstreamlined voluntary disclosure program or the government’s full blown offshore voluntary disclosure program in order to minimize the civil penalties at issue and to avoid criminal tax prosecution. However, you should not engage in this or any other penalty reduction strategy without thorough assessment and counsel of a dedicated dual licensed International Tax Lawyer & CPA. We generally do not recommend quite disclosures.
At the Tax Law Offices of David W. Klasing, our seasoned Dual Licensed Tax Attorneys and CPAs have years of experience dealing with the IRS. We know how serious potential FBAR penalties can be, and we can work to help you avoid them when you call us today at (800) 681-1295 or schedule a reduced rate initial consultation HERE.
IRS Reporting Requirements for Foreign Bank Accounts and Assets
If you are a U.S. citizen, resident alien, or otherwise pay taxes to the IRS, there are a number of disclosure requirements that you must meet. One of these disclosure requirements is the Report of Foreign Bank and Financial Accounts, or FBAR.
The FBAR requirements come from legislation passed in 1970 known as the Bank Secrecy Act. The goal of the legislation was to prevent sophisticated money laundering practices that used overseas shields to further the scheme. Until recently, the IRS has lacked the ability to investigate and prosecute FBAR violations thoroughly. However, recent upticks in the agency’s budget give them substantially more capability in this area.
The IRS requires an FBAR from a taxpayer when they have assets overseas in a given year that exceed $10,000 in value. This threshold is measured cumulatively, meaning that you must file an FBAR whether you have one account with $12,000 or two accounts with $6,000 each.
The FBAR is not your typical tax return. Rather, it is an information return. Therefore, filing your taxes using the commercial software that you might typically use to file your income tax return will not suffice. You do not have to pay any taxes in accordance with your FBAR disclosure. However, you cannot satisfy the FBAR requirements by including a note on your annual income tax return. You will have to submit FCEN Report 114 separately.
When you submit your FBAR filing, it is important that you list the account or accounts with their highest value at any point during the year. Even if the account peaked in value for only one day, that figure is the one that the IRS wants you to include when you file your FBAR.
You should not disregard the FBAR reporting requirements just because the assets are held in some other vehicle than a traditional bank account. Investment portfolios, pension plans, and trusts are all subject to FBAR disclosures. You may even be forced to disclose assets that you have control over but do not actually own or benefit from.
Why Does Willfulness Matter for Assessing FBAR Penalties?
The possible damage from a failure to submit an FBAR where it was required could be substantial. For the purposes of assessing these penalties, it will not matter whether the taxpayer filed an inaccurate FBAR, filed the FBAR too late, or did not file the FBAR at all.
What matters here is whether there is evidence that the taxpayer willfully failed to meet their FBAR filing requirements. The IRS may believe the taxpayer’s FBAR violation is based on a number of factors. Below are some of the ways in which willfulness may be imputed in the assessment of FBAR penalties.
- The taxpayer failed to file an FBAR over consecutive years
- The taxpayer failed to file an FBAR despite having filed it before
- The taxpayer did not report income from the foreign assets on their income tax return
- The taxpayer has a history of noncompliance
The government may assess willful FBAR penalties even in some cases where they cannot demonstrate that the taxpayer willfully shirked their foreign account reporting responsibilities. Courts have generally sided with the government in instances where the taxpayer displayed recklessness in their failure to file.
While this is still a gray area in the law, some courts have determined that willful blindness is enough to assess willful FBAR penalties. Willful blindness occurs when a taxpayer was aware of the high possibility that they had FBAR reporting obligations and purposefully avoided discovering these obligations.
Rather than sticking your head in the sand, it is always in your best interest to speak with a Dual Licensed Tax Attorney and CPA. Even if you have already missed filing deadlines for your FBAR, you may be able to benefit from the IRS’ Overseas Voluntary Disclosure Program (OVDP). Application for the OVDP can signal to the government that you made an honest mistake and hope to fix it, potentially avoiding harsh penalties.
Potential Penalties for FBAR Violations
If the IRS determines that you mistakenly failed to meet your FBAR disclosure requirements, they will assess penalties of up to $10,000 per violation. This could be based on the number of years in which you failed to file or the number of accounts that you failed to disclose.
If, however, the IRS finds that you willfully violated FBAR filing requirements, the penalties are much more substantial. Individuals who are found to have violated FBAR disclosure laws may face monetary penalties of up to either $100,000 or 50% of the balance in the foreign account or accounts, whichever is greater. Even if you fail to report only a portion of the overseas assets, the percentage calculation will be based on the entirety of the value of all overseas assets, not just the ones that you didn’t disclose.
The Tax Law Offices of David W. Klasing Can Help You Avoid Costly FBAR Penalties
No matter your circumstances, you can reap immediate benefits from bringing your situation to the attention of the Dual Licensed Tax Lawyers and CPAs at the Tax Law Offices of David W. Klasing. Call us today to hear more at (800) 681-1295.
The Tax Law Offices of David W. Klasing Can Get to Work for You Today
To find out more about what benefits you could get from the assistance of our Dual Licensed Tax Lawyers and CPAs, call us at our offices today at (800) 681-1295.
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
Contact Our California FBAR Fraud and Civil Penalty Defense Attorneys for Help
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
If you failed to provide accurate information to the IRS, you may be facing tax fraud charges if you do not come into compliance through a domestic or offshore voluntary disclosure. Our experienced dual licensed California Tax Fraud Defense Lawyers and CPAs are here to help. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 to arrange a consultation with our team or schedule a reduced rate initial consultation directly HERE.
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento.
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