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FBAR Non-Willful Penalties are Now “Per-Form,” Not Per-Account
Each year, thousands of U.S. taxpayers who hold assets overseas or money in offshore bank or financial accounts are required to report these assets to the IRS on a form known as Foreign Bank and Financial Account Report (FBAR). Failure to do so can result in severe civil and criminal penalties after a lengthy and invasive audit and or criminal tax investigation process by the IRS, where you will be required to reproduce years’ worth of documents. Additionally, if your conduct in failing to file an FBAR was willful to avoid paying taxes, you could face criminal penalties, including jail time.
A recent court ruling has qualified how financial penalties are assessed for non-willful violators of FBAR filing requirements. FBAR non-willful penalties are now “per-form,” not per-account. At the Tax Law Offices of David W. Klasing, our skilled tax attorneys and CPAs can help you file your FBARs properly in the first place to avoid trouble down the line. If you have already failed to file, we can work to bring you back into compliance, possible through a voluntary or streamlined disclosure program.
See our 2011 OVDI Q and A Library
See our FBAR Compliance and Disclosure Q and A Library
See our Foreign Audit Q and A Library
A willful violation is one that you committed on purpose. For example, if you knew that FBAR filings were required but deliberately failed to disclose your foreign bank and financial accounts in order to avoid paying higher taxes, that would be a willful violation of FBAR. While not all willful violations of FBAR filing requirements lead to criminal penalties, any time you commit willful tax fraud, you open yourself up to potential criminal liability. You should speak to an experienced tax attorney like those at the Tax Law Offices of David W. Klasing. We can work to negotiate a deal where you voluntarily disclose your willful violations in exchange for leniency on civil penalties and a likely pass on criminal penalties.
On the other hand, a non-willful FBAR violation is one where you essentially made a mistake, either because you did not know about FBAR filing requirements or because your filing was not correctly attached to your returns. It is important to note, however, that there is a concept known as “willful blindness” that is applicable in some FBAR violation cases. “Willful blindness” refers to conduct in which you did not know but should have known about FBAR filing requirements, and it can be considered willful. For example, a CPA may be held to this standard because of their specialized training and knowledge. Furthermore, you will always be required to sign a statement certifying non-willfulness, and if this statement is found to be false, you can face further criminal penalties.
Theoretically, only willful violations can result in criminal penalties (including incidents of “willful blindness”). Civil penalties can be assessed in both willful and non-willful violation cases. Even in non-willful cases, a settlement will usually include the payment of at least some civil fines, though a skilled tax lawyer can work to reduce them to as little as possible.
Basically, per-form penalties mean that a penalty applies per each FBAR form filed, which is one per tax year, while per-account penalties refer to penalties assessed on each account disclosed on the FBAR filings. This can make a big difference in the amount of money in penalties you will be required to pay as part of a settlement deal. For example, in a recent case called U.S. v. Bittner involving non-willful FBAR violations, there were 177 accounts involved, but only four years of FBAR filings. For the penalty of $10,000 per violation assessed in this case, that would mean the difference between paying $1,170,000 in fines versus paying $40,000 in fines.
The government made two main arguments in Bittner. They first argued that the penalties for non-willful violations should be treated as the same as for willful violations, which the statute says is per account. However, the court inferred that because the section of the statute about the penalty for willful violations makes an explicit reference to “the existence of an account” and “the balance in the account,” while the section regarding the penalty for non-willful violations does not, Congress intended that only the penalty for willful violations should relate to specific accounts. Therefore, they rejected this argument.
The second argument was that because the “reasonable cause exception” contained within the statute referenced the “amount in the account,” then the violation that the exception forgives must also be calculated on an account-by-account basis. The court disagreed with this logic and rejected this argument as well. As such, the court ruled that penalties for non-willful violations of FBAR filing requirements are to be calculated on a per form, rather than a per account basis.
The fact that non-willful penalties will now be calculated on a per form basis should be a huge financial relief to non-willful violators whose FBARs contained a reference to many different accounts. However, to get to this point, you must sign a declaration that your conduct was non-willful and come to a settlement or go through one of the IRS’s disclosure programs. Before doing so, you should always consult with an experienced tax lawyer like those at the Tax Law Offices of David W. Klasing, who can help advise you about the most painless way to get you back into compliance. To set up a consultation, call us today at (800) 681-1295.
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