Awards & Recognition
The United States is one of the few countries in the world that requires its citizens, legal permanent residents and others with a tax obligation to pay taxes on and to report their worldwide income. Legislation such as the Banking Secrecy Act (BSA) has created additional disclosure requirements for US taxpayers. Those with a US tax reporting obligation must also disclose foreign accounts in which they have an interest in or signature authority over if the balance, or aggregate balance of multiple account, exceeds $10,000 at any point during the tax year. Failure to file Foreign Bank Account Reporting (FBAR) or to make other disclosures as required by the BSA or Foreign Account Tax Compliance Act (FATCA) can result in severe civil and in appropriate circumstances, even criminal tax consequences directing many taxpayers to seek experienced representation from an OVDP lawyer.
David W. Klasing is a CPA and experienced international OVDP lawyer who is dedicated to resolving tax compliance issues while advocating and negotiating to minimize the potential civil and criminal tax consequences. With more than 20 years of experience handling difficult domestic and international tax issues, you can rest assured that your tax concerns will be approached with the utmost of care and consideration.
What are the consequences for failing to file FBAR?
Even an honest, good-faith mistake that resulted in a failure to file a required FBAR disclosure can result in the imposition of significant fines and penalties. A non-willful failure to file FBAR can be punished with a fine of $10,000 for each violation (per account, per year). Each year there is a new violation for the FBAR reporting obligation, additional fines and penalties can be imposed.
If the failure to disclose accounts is found to be willful or the product of a “voluntary, intentional violation of a known legal duty” or “reckless indifference” the civil and criminal penalties become exponentially more severe. Further exacerbating the situation for many US taxpayers is that the fact that the IRS interprets willfulness more broadly than a layperson would generally. For instance, in an unpublished decision the 4th Circuit held that pleading guilty to tax evasion also indicated a willful disregard of FBAR obligations despite a lack of evidence indicating that the individual was aware of an FBAR filing requirement. Furthermore, even without negative intent willfulness penalties can be imposed if a court finds that you were willfully blind or intentionally avoided learning about tax obligations or foreign information filing requirements.
A violation that is found to be willful carries extremely harsh penalties. A penalty of half of the account balance in the unreported account for every year the account was open and unreported can be imposed up to the five years statute of limitations for FBAR penalties. That is, if you hold a foreign account with a balance of $1,000,000 and fail to disclose that account for 10 years you would be fined half of the account balance for each year: $500,000. Over the course of 5 years, the total fine could theoretically add up to $2,500,000 or more than double the balance originally held within the foreign account.
If the FBAR-specific penalties weren’t severe enough, depending on the circumstance, the IRS could seek additional penalties. For instance, an additional 75% penalty can be imposed for civil fraud, and a 20% penalty can be imposed for negligent income tax reporting. Willfully failing to check the appropriate disclosure box on 1040 Schedule B can be considered filing a false return which is a felony, punishable by prison up to 5 years and a fine of $250,000 plus the cost of prosecution.
Selecting between Streamlined and Regular OVDP
While compliance with the law going forward is an absolutely necessary, alone, it is not enough to avoid the worst of the harsh consequences from failing to disclose foreign accounts. In short, you will have to do more to correct past compliance failures through a quiet disclosure or through a version of the Offshore Voluntary Disclosure Program (OVDP). However, you should only take action after consulting with an OVDP lawyer professional because making a quiet disclosure or entering into a streamlined disclosure program that is not appropriate for your facts and circumstances can compound your tax problems.
Many people are tempted by the Streamlined OVDP’s reduced penalties for FBAR non-compliance and accuracy. However, the decision to enter into the program should not be made lightly because the streamlined program carries no assurance that the matter won’t be referred to the Criminal Investigation Division of the IRS. Furthermore, if the taxpayer completes the streamlined program they will be ineligible for the standard OVDP program. In short, determining the type of disclosure or version of OVDP likely to correct past undisclosed accounts is a fact-specific exercise in risk-analysis.
Put our OVDP legal experience to work for you
Working with an experienced international tax professional can help you understand the tax problems created by OVDP compliance issues. Once your facts and circumstances are understood, we work to craft a legal strategy likely to minimize the problems created by coming back into compliance. OVDP attorney and CPA David W. Klasing of The Tax Law Offices of David W. Klasing is dedicated to assisting taxpayers located in the United States and abroad. To schedule a reduced rate tax consultation, call our firm at 800-681-1295.
