California FBAR Attorney
Failures to disclose foreign financial accounts via a Report of Foreign Bank and Financial Accounts (FBAR) filing and omissions of foreign sources of income unfortunately are common in occurrence. Despite the ease in which a filing failure can occur, the consequences for failing to comply with FBAR disclosures can be extremely harsh. The requirements for US taxpayers to disclose certain foreign financial accounts is one effort by the US government to erode the banking secrecy protections, such as those found in traditional tax havens, to combat the problem of offshore tax evasion. In response to IRS efforts to crack down on offshore tax evasion, more than 50,000 American taxpayers have voluntarily come forward to disclose their past tax problems and take advantage of the reduced penalties provided by Offshore Voluntary Disclosure.
Those who live and work in California are more likely to have a FBAR filing obligation due to the international character of the city. California is an international trade hub and home to major commercial ports. These cultural and business connections to foreign nations and markets makes it more likely that those connected to California may have foreign accounts to disclose.
An FBAR obligation can arise for US taxpayers who have a connection to a foreign financial account. Typically this means that the US taxpayer had an interest in or signature authority over a single foreign financial account or multiple accounts. Recent decisions by the courts have expanded the definition of what qualifies as an interest in a foreign account. The obligation to file FBAR and disclose a foreign account arises when the aggregate balance contained in the foreign accounts exceeds $10,000.
FBAR must be filed online via the BSA e-fling system located on the Financial Crime Enforcement Network’s web portal. A taxpayer who must disclose a foreign financial account makes this disclosure via Fincen Form 114.
What are the penalties for a failure to file FBAR?
If a taxpayer fails to satisfy their FBAR obligations, upon conviction, severe penalties can be imposed. The chief factor in determining the severity of the FBAR penalties that will be sought is whether the IRS believes that your disclosure factor was willful or merely the product of an unintentional oversight. If it is believed that your disclosure failure occurred for reasons like:
- You were unaware of FBAR.
- You inherited a foreign bank account but did not address it in a timely manner.
- You paid tax on the account, but failed to file FBAR.
- Another person owned the account in your name without your knowledge.
If your FBAR violation was for one of these reasons, the IRS is more likely to seek a conviction for a non-willful failure. A non-willful failure can be punished by a penalty of $10,000 per an undisclosed account for every year the account or accounts were undisclosed.
However, an IRS agent is free to choose to disbelieve your explanation for FBAR disclosure failures and may choose to pursue charges for a willful failure to file FBAR. Willful acts are voluntary or intentional violations of a known legal duty. Examples of willful violations of FBAR can include:
- The intentional failure to learn about your FBAR obligations through willful blindness.
- Engaging in conduct to conceal the foreign accounts including setting up international corporations or trusts.
- Traveling to foreign countries to retrieve the money contained in foreign financial accounts in cash, in US dollars.
Willful violations of FBAR can be punished by a fine of the greater of 50% of the account balance or $100,000. Because there is a 5 year review period when the violation is willful, the penalty will often exceed the original account balance. In addition to monetary penalties criminal charges can also be brought.
The Offshore Voluntary Disclosure Program (OVDP) can provide a way out of FBAR problems
If you suspect that you may have failed to make mandatory FBAR disclosures in the past, time is often of the essence. The Offshore Voluntary Disclosure Program provides noncompliant taxpayers reduced penalties and allows them to come back into compliance in exchange for disclosing their tax improprieties voluntarily. However, because a voluntary disclosure is required the program is unavailable if you have already come under investigation. Furthermore, if your foreign financial institution is publicly identified by the IRS, you will face a higher penalty rate than you otherwise would. To schedule a reduced rate initial consultation to discuss your tax concerns, call experienced California FBAR Attorney David W. Klasing at (800) 681-1295 or contact us online.