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How FBAR Investigations Are Handled

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How FBAR Investigations Are Handled

Many U.S. citizens have taxable income producing assets & businesses overseas or in offshore bank or financial accounts. While these assets may not technically be within United States borders, this does not mean they are out of reach of the IRS. American taxpayers are required to disclose all of their assets in foreign bank and financial accounts each year on a form known as FBAR, which must be submitted along with your tax returns. Failure to submit an FBAR when one is required or submitting incomplete or inaccurate FBARs can lead to an IRS audit or criminal tax investigation especially where income tax has been evaded on the funds deposited to the offshore financial accounts. Such investigations, in turn, can lead to big-time civil fines and even criminal tax charges if your actions in defrauding the agency were willful.

At the Tax Law Offices of David W. Klasing, our seasoned dual licensed Tax Lawyers and CPAs have decades of experience successfully helping our clients through FBAR civil and criminal tax investigations to bring the matter to the most positive possible resolution. As such, we understand a good deal about when and how such investigations are launched, how they are usually handled internally at the IRS, and what can be done to stave off the most serious potential consequences like criminal charges especially where the IRS has not yet knocked on your door.

Factors That Might Prompt the IRS to Begin an FBAR Investigation

One of the most common reasons that the IRS might begin criminally or civilly investigating a person for a potential FBAR violation is that their tax return or an information return states or implies a foreign source of income, but there is no corresponding FBAR filing. Especially for large businesses and individual taxpayers with complex, extensive returns, it is easy to overlook mentioning a foreign account elsewhere in the returns or on a supporting document without realizing you are implicating yourself in a serious tax crime. Therefore, it is vital to retain the services of a skilled dual licensed Tax Attorney and CPA like those at the Tax Law Offices of David W. Klasing before you file your returns, so we can review your financials and make sure all the proper forms are filed in a timely and accurate manner.

Another factor that might prompt the IRS to begin an investigation into whether or not someone has not been filing required FBARs is information the agency received from a foreign or international institution. The U.S. has information-sharing policies in place with many foreign nations and banking institutions, and recently, an international task force has even been convening to work on ways to better track down and prosecute those committing tax crimes that cross borders. If the IRS receives information from a foreign agency indicating that you are in possession of assets that you failed to account for by filing an FBAR, the agency is likely to launch an in-depth probe into whether you have been covering up foreign assets or accounts.

How A Typical FBAR Investigation Goes

The agents involved will begin by assessing whether you did, in fact, have foreign assets or offshore bank or financial accounts that you were required to report on an FBAR. They will do this by requesting information from multiple sources, including potentially requesting supporting documents and information directly from you. It is important to note that in order to take advantage of the IRS’s voluntary disclosure program, where you can be brought back into compliance with a near-guaranteed pass on criminal prosecution, you must file before the agency begins an investigation or audit into your conduct. Once the investigation has begun, the agency is most likely going to reject any application for voluntary disclosure for information they already have or are in the process of acquiring.

If the agents believe that they have clear evidence that an FBAR violation was committed, their next step will depend on whether or not the actions of the taxpayer are seen as being a willful violation, rather than an honest error or mistake. If the actions were potentially willful, the matter might be looked at by a fraud technical adviser (FTA) or referred to the criminal investigation unit for further action. If the criminal investigators feel that a willful tax crime was committed, they can refer the matter for criminal prosecution. On the other hand, if the agency believes the matter was unintentional, they will likely keep it as a civil matter and work to collect the back taxes owed as well as civil fines. Note, however, that the civil fines for willful behavior are significantly larger than those for non-willful behavior.

By contacting a skilled tax attorney like those at the Tax Law Offices of David W. Klasing as soon as you get wind that you may be the subject of an investigation into your past misconduct, you will give us the chance to work with the agents to keep the matter a civil issue rather than a criminal one and to negotiate the most reasonable possible settlement for you to pay what you owe and any fines assessed. In some cases where we can show that you had “reasonable cause” for not filing, such as the fact that you were hospitalized for months around the filing deadline, we may be able to convince the agency to waive the fines entirely and simply accept the reimbursement owed.

If You Believe You May Be the Subject of an FBAR Investigation, Contact Our Veteran Tax Attorneys Right Away

The best time to deal with past mistakes in failing to file FBAR or filing incomplete or inaccurate FBARs is before the IRS catches onto you, when a voluntary disclosure program that can limit your liability may still be a possibility. If an investigation into your actions has already begun, however, our skilled tax attorneys at the Tax Law Offices of David W. Klasing can use our years of institutional knowledge regarding the FBAR investigation process to work to mitigate the damage and keep you from facing the most severe potential penalties like a criminal conviction for tax fraud. To set up a consultation, call us today at (661) 432-1480.

Questions and Answers about Offshore Voluntary Disclosure Initiative (OVDI)

Note: this program is CANCELLED but much of the information below is still relevant.

See our Foreign Audit Q and A Library

Questions and Answers about FBAR Compliance and Disclosure

Questions and Answers About Foreign Tax Audits