The United States District Court for the Northern District of California recently ruled in favor of the Internal Revenue Service, which sued defendant Francis Burga for nearly $120 million after the defendant failed to pay FBAR penalties associated with almost 300 unreported foreign financial accounts. Burga, who became administrator of the estate of her late husband Margelus Burga following his death in 2010, maintained hundreds of bank accounts in tax jurisdictions around the globe from 2004 through 2009, including unreported accounts located in tax havens like Liechtenstein, Singapore, Panama, Switzerland, and the British Virgin Islands. Each of these accounts contained funds exceeding $10,000, which is the threshold for filing an FBAR – an important financial form which our international tax attorneys will discuss in this article.
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Before discussing Burga’s case, our FBAR lawyers will provide some context for readers who may be unfamiliar with federal FBAR filing requirements. The acronym “FBAR” stands for Foreign Bank Account Report. The FBAR, also called FinCEN Form 114, is an online-only form that, with some exceptions, must be filed by taxpayers (including U.S. citizens and resident aliens) who have a financial interest in or signature authority over certain foreign financial accounts worth, at any time during the reporting period, $10,000 or more in aggregate. For example, if a person moves to the United States but maintains a savings account in his or her country of origin, that taxpayer could meet FBAR filing criteria. FBAR requirements could affect you even if you have lived and worked in the U.S. all your life; for instance, if you have recently made certain foreign investments, such as foreign life insurance or mutual funds. (For more information on this subject, refer to our article explaining what types of foreign investments are reportable for FBAR purposes.)
It is vital to comply with FBAR regulations, because there are costly penalties for failing to file an FBAR. Determination of FBAR penalties is based, in part, upon whether the violations were “willful” (i.e. fraudulent) or “non-willful” (i.e. negligent), with greater penalties imposed for willful violations. The maximum non-willful penalty is $10,000 per instance of non-filing (i.e. $10,000 per unreported account) – costly, yet far smaller than the willful FBAR penalty, which is the greater of either (1) $100,000 or (2) 50% of the noncompliant account balance, imposed per each violation. As we discussed in our article on how the IRS determines whether conduct was willful, the presence of indicators of fraud is a major deciding factor.
In this particular case, which is exceptionally large in scope, the complaint stated that Burga “had financial interests in at least 294 foreign bank accounts, in various countries, during at least years 2004 through 2009,” including well-known tax havens such as Panama (source of the controversial “Panama Papers”), and Switzerland (where Swiss bank UBS has faced a series of tax evasion scandals, most recently this February).
Burga, whom the complaint described as “the starting point in… [a] false invoicing scheme,” was fined for numerous failures to file FBARs in June of 2017, at which time the IRS “assessed civil penalties… in the amount of $52,581,605.” However, Burga subsequently failed to pay the penalties, allowing considerable interest to accrue (in accordance with 31 U.S. Code § 3717(a)). She was also charged collection fees (which are established by 31 U.S. Code § 3717(e)(1)), plus late-payment penalties (which are established by 31 U.S. Code § 3717(e)(2)). Accumulated interest, collection fees, and late-payment penalties, combined with the original penalty, brought Burga’s total amount due and owing to approximately $119,603,703 as of May 2019. Notice how the additional fees and charges more than doubled the original penalty in the space of less than two years.
You don’t need hundreds of bank accounts to face costly penalties for FBAR noncompliance. Failure to report a single account can trigger high fines – which, as Burga’s case demonstrates, can be significantly increased by interest, fees, and penalties.
If you have unreported offshore accounts or investments, it is in your best interests to consult an experienced tax attorney right away. It may be appropriate to make a voluntary disclosure, file amended returns, make a domestic or expat streamlined voluntary disclosure or participate in the IRS’s delinquent foreign information reporting program or pursue other strategies to limit penalties and minimize the risk of criminal prosecution. However, it is crucial to act before you are audited or placed under investigation, which is imperative to qualify for most of the solutions delineated above. To arrange a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our tax offices today at (800) 681-1295.
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