Having investments in foreign or international assets can make things complicated for U.S. taxpayers. Aside from all the other obligations they have with regard to filing an accurate and complete tax return each year, these taxpayers often have additional information reporting requirements on a form called Report of Foreign Bank & Financial Accounts (FBAR) if they meet certain threshold amounts of cash or assets in foreign or offshore bank accounts or financial institutions. Unfortunately, many taxpayers are either unaware of the FBAR requirements or openly choose to flout them. The IRS as well as FinCEN, a division of the treasury department, are tasked with tracking down those who are not in FBAR compliance as part of their global mission to stop money laundering. Recently, FBAR enforcement has been on the rise even more. If you have failed to file FBAR or made inaccurate or incomplete FBAR reports in the past, now is the time to contact a skilled FBAR tax attorney and CPA like those at the Tax Law Offices of David W. Klasing to discuss your options for fixing this issue while minimizing tax, penalties and interest and avoiding criminal prosecution for taxable offshore income tax evasion and criminal foreign information reporting noncompliance.
When is an FBAR Filing Required?
American taxpayers with money or assets in offshore bank or financial accounts are required to disclose these accounts through the Foreign Bank and Financial Account Report, or FBAR, if the aggregated value of these accounts exceeded $10,000 at any time during the previous year. If you fail to make this report as required and are caught by the IRS, you could face serious penalties. A non-willful violation of the FBAR reporting requirement is subject to a civil penalty of $10,000, as per 31 U.S.C. § 5321(a)(5) (B)(i), unless the agency finds that there was reasonable cause for the violation, in which case they can choose to impose no penalty. A willful violation is subject to a civil penalty equal to the greater of $100,000 or 50 percent of the aggregate balance of accounts reportable on an FBAR, as per 31 U.S.C. § 5321(a)(5)(C). Willful failure to file FBAR can also result in criminal penalties if the matter is referred to the IRS’ criminal investigation unit.
Indications that FBAR Enforcement is On the Rise
While many folks who fail to file FBAR reports properly and on time are caught by the IRS through an audit or criminal tax investigation not long after they file their returns, others manage to seemingly get away with it for the time being. However, this is an illusory feeling, as, while it can sometimes take years for the IRS to catch you for these violations, they usually do. Further, the longer you go without correcting the issue, and the more years you fail to file the necessary documents, the less likely it becomes that the IRS will be willing to work with you and issue lenient penalties if you pay what you owe.
Furthermore, all indications in recent years have been that FBAR violation enforcement by the IRS has been going up, not down. This can be due to a variety of reasons, including the fact that FBAR penalties are a cash cow for the agency. In addition, fighting already-issued FBAR penalties can be extremely difficult, as FBAR is not an IRS form, but a Treasury Department “reporting form,” which means that you cannot fight the penalties in tax court. However, if you reach out as quickly as possible to a skilled dual licensed Tax Attorney & CPA like those at the Tax Law Offices of David W. Klasing, you give yourself the best chance of mitigating the damage and coming to as positive a resolution as possible with the agency.
What Are My Options If I Have Failed to File FBAR in Past Years?
If the IRS has yet to begin an audit or criminal investigation into your behavior, our experienced Tax Attorneys & CPAs at the Tax Law Offices of David W. Klasing may be able to get you into one of the agency’s voluntary disclosure programs that will seriously limit your potential civil and criminal exposure.
Streamlined Disclosure
For conduct that was non-willful, you may be eligible for a streamlined disclosure program. However, it is important to note that you must certify non-willfulness as a condition of entering into this program, and that false certifications of non-willfulness qualify as an additional crime with additional serious penalties. If you are certain that your conduct was non-willful, however, streamlined disclosure is usually your best option.
As part of the program, you will be required to produce 3 years of tax returns and 6 years of FBARs, which we can help to reconstruct. Of course, you will also have to pay back what you owe. Aside from avoiding criminal charges, for non-residents, you will also avoid the “offshore penalty” entirely, and for residents, you will have to pay only 5% on the highest aggregate amount in the account over the course of the years you were in violation.
Voluntary Disclosure
The IRS’s Voluntary Disclosure Practice (VDP) is a follow-up to its Offshore Voluntary Disclosure Program (OVDP) program, which was discontinued in 2018. The new program allows those who failed to make required disclosures regarding either domestic or offshore accounts and assets to apply and is open to both willful and non-willful violators. In exchange for getting out of the more severe consequences, you will have to pay all back taxes plus interest, and you will also have to pay a civil fraud penalty of 75% on the highesttax deficiency year out of the past 6. For FBAR violations, you will also be assessed a penalty of whichever is greater: 50% of the highest aggregate balance of the account over the six-year disclosure period, or $100,000.
If You Have Failed to Properly File FBAR in Past Years, Reach Out to Our Knowledgeable Tax Attorneys Right Away
FBAR enforcement is on the rise, and it is imperative that anyone who has met the threshold in past years but failed to file their FBAR, or filed false or misleading FBARs, get back into compliance as soon as possible. At the Tax Law Offices of David W. Klasing, our battle-tested dual licensed Tax Lawyers and CPAs can assess the specifics of your situation and decide if a voluntary disclosure program, or even simply amending the returns through a “quiet disclosure” is right for you. To set up a consultation, call our office today at (800) 681-1295 or schedule online today.
See our Foreign Audit Q and A Library
Questions and Answers about Offshore Voluntary Disclosure Initiative (OVDI)
- Why hire David W. Klasing to represent me in an audit
- 2011 Offshore Voluntary Disclosure Initiative FAQ
- Key Features of Initiative
- Eligibility For This Initiative
- 2011 OVDI Process
- Calculating The Offshore Penalty
- Statute of Limitations
- FBAR Questions
- Taxpayer Representatives
- Case Resolution
- What not to do!
- What to do!
- FBAR Reporting and Expired Voluntary Disclosure Program
- How the Law Offices of David W. Klasing Can Help
- Bank account overseas I didn’t report on my income tax
- Do I have to maintain information on overseas bank accounts
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
Questions and Answers About Foreign Tax Audits
- Does the Fifth Amendment apply to foreign accounts?
- How is evidence cultivated from foreign sources?
- How is tax loss determined?
- How might an FBAR audit be resolved?
- Is a penalty assessment ripe for judicial review?
- Overview of an administrative criminal investigation
- What is the process of an FBAR referral?
- Statute of Limitations raised during a FBAR audit?
- Precautions to be taken in the pre-audit phase
- Recent international tax and reporting prosecutions
- Foreign account, entity and investment prosecution
- Who collects restitution and penalties?
- International tax investigations are an IRS high priority
We Are Here for You
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
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