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Can You Accidentally Commit a Foreign Bank Account Reporting Violation?

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Can You Accidentally Commit a Foreign Bank Account Reporting Violation?

Currently, it is becoming more and more common for taxpayers to utilize a foreign bank or financial accounts for plenty of valid reasons. Those who have a foreign or financial bank account should also know that the United States will tax them on offshore income earned and deposited in those accounts or on the investment income earned on the offshore capital. Therefore, it is important to understand your obligations when it comes to owning or controlling a foreign bank or financial account. If you believe that you accidentally committed a foreign bank account reporting violation, talk to our dually licensed International Tax Attorneys and CPAs today. Let the team of professionals at the Tax Law Offices of David W. Klasing handle your tax law matters if you are facing civil or criminal exposure for failing to report your foreign bank or financial accounts and the related taxable offshore income.

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!

Requirements for Foreign Bank Account Reporting

If you possess a foreign financial account, you will likely be subject to foreign bank account reporting (FBAR). Specifically, U.S. persons such as citizens, residents, partnerships, corporations, and other legal entities are required to follow FBAR regulations if the following is true:

  • The U.S. person has an interest, signature authority or control over a financial account that is not within the United States
  • The value of all the combined foreign accounts combined exceeds $10,000 at any point throughout the calendar year

A taxpayer should also note that there are some foreign financial accounts that do not have to be reported under FBAR:

  • Accounts owned by government entities
  • Correspondent or Nostro accounts
  • Financial accounts owned by international financial entities
  • Accounts that were opened for U.S. military banking
  • Owning or being a beneficiary of a foreign account that is held in an individual retirement account (IRA) or another type of retirement account based in a foreign country

Alternatively, the following accounts are subject to FBAR:

  • ETF accounts
  • Foreign stock accounts
  • Foreign life insurance
  • Investment accounts
  • Mutual funds

The FBAR must be filed by April 15 of the following calendar year. Taxpayers are given an automatic extension until October 15 with an extension of the personal tax return BUT the FBAR must be filed before or with the income tax return if filed after April 15 and before October 15th. The FBAR deadline may also be extended if the taxpayer is a victim of a natural disaster, such as a wildfire or earthquake. Speak with our dually licensed International Tax Attorneys and CPAs if you were not able to meet the deadline for your foreign account reporting.

Determining When Foreign Bank Account Reporting Violation is Accidental

There are many steps to consider when determining whether a late or unfiled FBAR return could be deemed as an accidental violation. If a person accidentally did not file their FBAR return by April 15 or the extended October 15 deadline, the Internal Revenue Service (IRS) would categorize this as a non-willful violation of FBAR requirements. Note, however, that it is not enough for a person to merely claim that they accidentally missed the filing date. The assertion must be supported by evidence.

Unfortunately, the IRS does not have a list of a complete set of rules that would clearly identify when an FBAR violation was non-willful or willful. Instead, the IRS will look at the totality of the circumstances to assess whether the taxpayer should be penalized for their violation. The following are some factors that may influence the decision of an IRS examiner in an accidental FBAR violation case:

  • The aggregate value of the foreign accounts and the unreported foreign income they earned
  • Whether the taxpayer retained a CPA/EA to file their annual returns
  • Whether the CPA or EA inquired about the taxpayer’s foreign income earning assets and foreign financial accounts
  • The taxpayer’s status as a S. tax resident
  • The taxpayer’s history of filing tax returns and whether they are frequently late
  • The approximate date when the taxpayer learned of their FBAR and offshore taxable income reporting obligations

These are not the only factors that are analyzed in an FBAR non-willful violation claim. For example, if a taxpayer has exhibited a pattern of negligence or demonstrated willful blindness when it comes to filing their tax returns and FBARS, this could be a serious criminal tax and foreign information reporting issue. Our dually licensed International Tax Attorneys and CPAs are here to help you prepare for your FBAR violation case or Foreign Account Eggshell Audit.

Willful Foreign Bank Account Reporting Violations

If the IRS does not believe that a taxpayer’s FBAR violation was accidental or non-willful, they may allege that it was deliberate or willful. In some cases, a taxpayer may even be accused of willful blindness regarding their FBAR return liability.

Willful blindness is when taxpayers attempt to guard themselves from information that would make them knowledgeable about their criminal liability. Generally, there are two factors that are used to analyze whether a taxpayer was willfully blind to the truth:

  1. The taxpayer has subjective knowledge that there is a high chance that a certain fact exists
  2. The taxpayer took intentional steps to avoid learning the essential fact

Be advised that depending on the circumstances of your case, you may be subject to civil and criminal penalties. As a result, you should not hesitate to contact our dually licensed International Tax Attorneys and CPAs if you believe you may have violated FBAR regulations especially where offshore taxable income went unreported. Competent legal representation could mean the difference between serious monetary fines and criminal tax and foreign information reporting prosecution or securing a hard pass on criminal prosecution and obtaining advantageous civil penalties under a streamlined or full-blown voluntary disclosure. In certain circumstances an Expat Streamlined Voluntary Disclosure or Delinquent Foreign Information Reporting Program could even result in zero penalties.

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Call Us if You Accidentally Committed a Foreign Bank Account Reporting Violation

The California tax attorneys and CPAs at the Tax Law Offices of David W. Klasing have worked on several cases regarding failure to file an FBAR, and our services are available to you. No taxpayer wants to face penalties for FBAR reporting violations as they could be subject to thousands of dollars in fines. With the extensive knowledge and experience we have with this topic; we could increase your chances of reaching a favorable outcome for your case. Call our law offices for your consultation at (800) 681-1295.

Questions and Answers About Foreign Tax Audits

Questions and Answers about FBAR Compliance and Disclosure

Questions and Answers about Offshore Voluntary Disclosure Initiative (OVDI)

We Are Here for You

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. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.

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