Report of Foreign Bank and Financial Accounts (FBAR) has long required taxpayers to disclose the existence of certain offshore accounts and assets when the aggregate value of those accounts and assets exceeds $10,000. While this obligation has existed for years, it is only fairly recently that the U.S. government has focused on enforcement of offshore account disclosure. Under a reform bill, the FBAR penalties for willful reporting failures was strengthened. Additionally, a new penalty that punishes even accidental reporting failures was established. If the heightened FBAR penalties weren’t enough, the passage of FATCA and corresponding international tax information sharing treaties provides the U.S. government with a wealth of information to use to identify and prosecute noncompliant U.S. taxpayers.
Taxpayers who have not filed FINCEN 114 to satisfy his or her FBAR obligation face a high risk of identification. Taxpayers who are identified as noncompliance with FBAR can face harsh penalties and other consequences.
Taxpayers can face serious consequences for even an accidental failure to file FBAR or for other inadvertent deficiencies. Noncompliance with FBAR that is likely to be deemed non-willful or accidental includes:
- Failure to file without the presence of action or inaction that would suggest intent or willfulness.
- Forgetting to include a single foreign account.
- Filing FBAR late by several days.
- Failure to realize that a certain account type or asset type was covered by the FBAR disclosure obligation.
FBAR compliance issues of this type can, upon conviction, be punished by a fine of up to $10,000 for each instance of non-compliance. This means that a penalty can be imposed for each year where a reporting obligation existed but the taxpayer failed to do so. Of course, the IRS agent or attorney from the Department of Justice may perceive your actions differently than you intended and think that your actions were willful. Willful FBAR violations are punished significantly more harshly.
Questions and Answers about FBAR Compliance and Disclosure
- Potential charges for not participating in the 2014 OVDP
- How many tax returns will I amend for my FBAR filing?
- FBAR Voluntary Disclosure program end
- Can I make a voluntary disclosure after the deadline?
- Can I use IRS Voluntary Disclosure if I Can’t Pay?
- Potential reporting requirements and civil penalties
- What Happens if You Don’t Disclose Foreign Accounts
- Criminal charges if you refuse voluntary disclosure
- Characteristics of FBAR voluntary disclosures
- What is required to make a valid voluntary disclosure?
- 2012 Offshore Voluntary Disclosure Initiative Objectives
- What is an FBAR?
- Filed amended returns without making a Voluntary Disclosure
- Undisclosed foreign accounts: What exchange rate to use
- Why did the IRS announce the 2012 OVDI at this time?
- Should I consider making an offshore voluntary disclosure?
- Why to consider making a Voluntary Disclosure
- 2012 OVDI program vs. the voluntary disclosure practice
- Foreign bank account asset reporting/filing requirements
What Penalties Can I Face for a Willful FBAR Violation?
A willful FBAR violation is a compliance issue that can lead to significant penalties and may even result in additional tax problems stemming from any failure to pay taxes on the undisclosed accounts. A willful FBAR violation is one that can be attributed to a voluntary or an intentional failure to satisfy a known legal obligation. Intentionally avoiding opportunities to learn about the FBAR disclosure obligation – willful blindness – can subject an individual to liability for a willful FBAR violation. Likewise, a taxpayer who fails to file FBAR and then attempts to conceal the compliance failure would have also engaged in willful behavior.
Willful FBAR violations are punished severely upon conviction. A willful FBAR violation can subject an individual to a fine equaling the greater of $100,000 or 50 percent of the account balance. Since penalties for willful FBAR violations can be imposed for multiple years, penalties routinely exceed the original balance of the account. Furthermore, when willful behavior is present, there is an increased likelihood that the taxpayer may face additional criminal charges for interference with the administration of the U.S. Tax Code, tax evasion, or tax fraud.
Taxpayers With Undisclosed Offshore Accounts Face a Heightened Risk of Detection
Congress has not only authorized increased penalties for noncompliant taxpayers, it has also passed laws to give federal prosecutors the tools to identify and pursue noncompliant individuals. Aside from the disclosure obligations set forth in FBAR, Foreign Account & Tax Compliance Act and its corresponding international information sharing agreements means that foreign tax authorities are providing the U.S. government information about U.S. linked accounts. Agents from the IRS and DOJ are using this information to identify and pursue taxpayers who have not made required foreign disclosures.
FBAR & FATCA Problems Can Be Handled Through OVDP
Offshore Voluntary Disclosure Program and Streamlined Disclosure can mitigate the consequences the taxpayer faces due to one’s failure to disclose offshore accounts. However, taxpayers must act swiftly to take advantage of this program because any enforcement action taken against the taxpayer will make that individual ineligible for reduced penalties. Furthermore, even if the taxpayer’s eligibility is undisturbed, the foreign bank or financial institution may be added to the IRS’ facilitators list. Banks on this list require the taxpayer to pay a heightened offshore compliance penalty. Therefore it is almost always in the taxpayer’s best interests to seek guidance in a timely manner.
The experienced team of tax professionals at the Tax Law Offices of David W. Klasing can present your options and help you avoid FBAR penalties and come back into compliance with the U.S. Tax Code. To schedule a reduced-rate FBAR and offshore account consultation, call 800-681-1295 or contact us online today.