For the better part of this decade, the Department Justice Tax Division, along with the Internal Revenue Service have been seeking out and prosecuting those who own (or have signature authority over) foreign bank accounts that have not reported offshore income or filed FBAR’s with the federal government. Although there have been aspects of the DOJ’s criminal prosecution that were not shared with the public (like the exact definition of criminal willfulness), sentencing for those convicted had been treated fairly consistently. Last week, a senior DOJ official announced that the government has a new sentencing policy and it can mean trouble for many willful Foreign Bank Account Reporting (FBAR) violators that haven’t yet been prosecuted or sentenced.
Last week at the American Bar Association’s National Institute on Criminal Tax Fraud and Tax Controversy meeting in Las Vegas, Mark Daly, Senior Litigation Counsel to the DOJ Tax Division announced that the Justice Department would be seeking prison sentences in FBAR cases based on the offshore account’s value. Traditionally, the DOJ suggested sentences based on Section 2T1.1 of the federal sentencing guidelines which took into account the amount of tax loss (i.e., the amount of money that the IRS was unable to collect due to the taxpayer’s illegal behavior). Daly announced that senior leaders at the DOJ have decided to use Section 2S1.3 of the sentencing guidelines, which considers the value of the undisclosed foreign account in question, instead.
Daly said that the DOJ expects the change to lead to higher offense levels and therefore longer prison sentences. Additionally, he said that the change will result in the increase of the average defendant’s “pattern of criminal activity”, leading to a higher sentencing score and a lengthier sentence. The change means that even if a taxpayer’s failure to disclose their foreign bank account didn’t result in any revenue loss through tax collection, the DOJ will push for a harsh sentence if the hidden account’s balance is high.
Federal law requires persons who own (or have signatory authority over) a foreign bank account with a high-balance of $10,000 or more at any point during the year to disclose the existence of that account on a yearly basis. FBAR laws have been on the books for years but have only been strictly enforced as of recently. A number of high-profile Swiss banks have cooperated with the U.S. government and have handed over lists of names and other sensitive information of U.S. account-holders that may have not complied with FBAR laws.
Although the DOJ has changed their strategy on sentencing recommendations, there are still unknowns about criminal FBAR prosecutions. For instance, a person who willfully fails to disclose their foreign bank account under the FBAR regime faces criminal prosecution that can lead to time in a federal prison. The law may seem clear enough except for the fact that the DOJ will not provide a clear definition of the term “willful”. This leaves taxpayers and practitioners guessing as to whether participation in protective disclosure programs like the Offshore Voluntary Disclosure Program (OVDP) is warranted.
The OVDP allows taxpayers, if accepted into the program, to avoid criminal prosecution by coming forward, providing detailed information about their foreign bank account, and paying a penalty with any back-taxes and interest. The OVDP can be a viable solution for those who know that (or are insure if) their failure to comply rises to the level of willful. The OVDP does have one major requirement: the applicant may be denied protection under the Program if their tax affairs are already being looked into.
The OVDP is not the right program for everyone but if you have a foreign bank account that has not yet been disclosed to the federal government, it is in your best interest to contact an experienced tax attorney as soon as possible. The DOJ’s change of sentencing policy indicates that they intend to press for even harsher sentences for FBAR non-compliers than they already do.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers from all walks of like. Whether you are the target of an IRS or state tax audit or are wanting to come clean with regard to your undeclared foreign bank account, our team of zealous advocates are ready to assist you along every step of the way. Don’t let the fear of a criminal prosecution keep you up at night. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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