FBAR: This Page at a Glance
For Americans who have offshore income-generating assets and businesses and deposit their profits in foreign banks, brokerages or other overseas financial institutions, the reporting of these assets for tax and information reporting purposes can be a challenge. Federal rules, such as FBAR and FATCA, have changed the expectations for American businesses and individual taxpayers in regard to what type of information they need to provide when filing their income taxes.
Make a mistake during the filing of this information, and you could be facing significant civil penalties and possible criminal prosecution for tax crimes if the information reporting noncompliance or offshore income tax evasion is deemed willful.
The IRS has stepped up enforcement of those who fail to report their foreign holdings, so this is a situation where you do not want to make an error. You need to at least have a basic understanding of how FBAR and FATCA work to ensure you are following the rules properly.
An FBAR filing requirement goes into effect when the value of the taxpayer’s holdings in foreign financial accounts exceeds $10,000 at any time during the calendar tax year. This can happen on Jan. 1, Dec. 31, or anytime in between. Once the combined deposits in foreign financial accounts equal or exceed the $10,000 reporting threshold, it triggers an FBAR filing requirement. Offshore information reporting under Form 8938 FATCA reporting goes into effect when the taxpayer hits a threshold too, but the calculation of this threshold depends on the taxpayer’s filing status and where he or she lives the majority of the time, in the U.S. or offshore.
Because FBAR and FATCA are so complex, hiring a tax attorney can help you stay within the rules or to return to compliance after making an error in your past tax filings as painlessly and with the least amount of risk possible. The IRS does allow some taxpayers to go back and fix errors related to FBAR, as long as the error was inadvertent, no offshore income was omitted and as long as the taxpayer reaches out to fix the mistake before the IRS opens an audit or investigation under the delinquent foreign information reporting program.
By hiring a tax attorney for this type of situation, rather than relying on solely a tax preparer, additional protections are achieved by the fact that your attorney cannot be forced to testify against you in future legal proceedings with the IRS.
FBAR Lawyer & Law Firm
Experienced FBAR Attorney and CPA for Foreign Bank Account Reporting
U.S. taxpayers who fail to make required offshore disclosures under either Report of Foreign Bank & Financial Accounts (FBAR) or Foreign Account & Tax Compliance Act (FATCA), can face harsh penalties and sanctions. Taxpayers must satisfy all disclosure obligations or they are likely to face enforcement action by the IRS or Department of Justice. Whether you fear consequences due to past filing failures or have already been contacted by the IRS, the experienced international tax attorneys and CPAs of the Tax Law Offices of David W. Klasing can fight for you.
At one point, offshore, secret offshore financial bank accounts were simply part of how people arranged their financial affairs. Many people who had gone through the harrowing experienced of World War II understood that it was important to diversify their financial holdings by holding assets in a number of nations. Many individuals from this WWII generation then passed on this wisdom advising their children, grandchildren, and great grandchildren to keep money and assets in secret foreign bank accounts “just in case.” Under the laws of the time, this advice was relatively sound or, at minimum, the risk of consequences from holding these foreign bank accounts without making a disclosure was slight. However, times and laws have changed as our government launched the need for FBAR or Report of Foreign Bank & Financial Accounts.
Taxpayers who hold offshore accounts or assets are required to disclose these assets through a FATCA disclosure, FBAR disclosure, or both when their accounts exceed a certain aggregate value. For FBAR, a filing obligation exists when the value of offshore assets exceeds $10,000 at any time during the tax year. For FATCA the value threshold at which a taxpayer must make disclosures is less straightforward because it is based not only on the individual’s tax filing status, but also whether the taxpayer is living in the United States or in a foreign country. A taxpayer who is married filing jointly while living in a foreign nation can hold the greatest amount of assets before he or she is required to disclose under FBAR. In contrast, a single taxpayer filing alone and while living in the United States can hold the least assets before he or she would be required to disclose.
Taxpayers can satisfy their FBAR obligation by filing FinCEN Form 114 by the annual FBAR filing deadline. One’s FBAR electronic filing obligation can only be satisfied by filing this form online through the bank Secrecy Act’s e-portal. One’s FATCA obligation can be satisfied by filing IRS Form 8938.
Penalties For FBAR and Offshore Noncompliance
Taxpayers that fail to file FBAR despite having an obligation to do so can face significant fines, penalties, and even a potential federal prison sentence. If an FBAR audit were to occur, a taxpayer that fails to file FBAR even inadvertently can face a fine of up to $10,000 for each year where the account went undisclosed. If an IRS agent believes that the taxpayer’s offshore disclosure failure is willful in nature, penalties escalate rapidly. A willful FBAR violation is one that involves the intentional or voluntary disregard of a known legal duty. In certain circumstances, willful blindness or reckless indifference as to these filing requirements will also constitute willful behavior. Willful FBAR violations can be punished by a fine that is the greater of $100,000 or 50 percent of the original account balance. Since FBAR penalties can be imposed for multiple years, penalties can often exceed the original account balance.
The Risk of Offshore Account Detection
Unfortunately for holders of foreign assets and offshore accounts, the risk of detection of your accounts has never been higher. The passage and expansion of FATCA means that more than 100 countries across the globe have already signed tax information sharing agreements with the United States government. Foreign banks and foreign financial institutions located within these jurisdictions are required to turn over information regarding U.S. linked accounts. The IRS and Department of Justice then use this banking and tax data to identify U.S. taxpayers who have failed to disclose and pay taxes on their foreign accounts or assets. The rapid expansion of FATCA means that secret offshore accounts are no longer a viable strategy and subject the holder to an unreasonable risk of severe financial and legal harm.
The tax professionals of the Tax Law Offices of David W. Klasing includes tax attorneys and CPAs who are dedicated to mitigating the consequences faced by taxpayers who have failed to maintain international account compliance. However, time is often of the essence in filing FBAR and addressing offshore tax situations. Taxpayers who come under investigation before making a disclosure are ineligible for programs like Offshore Voluntary Disclosure Program (OVDP) or Streamlined disclosure. To schedule a reduced-rate offshore tax consultation call our firm at 800-681-1295 or contact us online.