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Potential charges for not participating in the 2014 OVDP

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    Note: If you use the Streamlined Filing Compliance Procedures under the incorrect assumption that you were non-willful you have exposure for all of the following:

    As explained elsewhere on this website, the IRS has recently unveiled a new program that allows taxpayers with undisclosed offshore accounts and assets to “come clean”—with the hope of putting the past behind them. This new program is the 2014 Offshore Voluntary Disclosure Program (2014 OVDP) which similar to the older ones (from 2009, 2011, and 2012), but with some significant changes.

    There are about a dozen civil penalties that could apply if a non-compliant taxpayer does not participate in the 2014 OVDP. See the end of the following article:

    In addition, there are a handful of criminal charges that could apply if an “out-of-compliance” taxpayer fails to participate in the 2014 OVDP:

    1. Tax evasion per IRC § 7201.
    2. Filing a false return per IRC § 7206(1).
    3. Failing to file an income tax return per IRC § 7203.
    4. Conspiracy to defraud the government with respect to claims per 18 U.S.C. § 286.
    5. Conspiracy to commit offense or to defraud the government per 18 U.S.C. § 371.
    6. Willfully failing to file an FBAR (or filing a false FBAR) per 31 U.S.C. § 5322.

    The distinction between a criminal charge and a civil charge is no small matter. In the first place, a criminal charge could result in a jail sentence. Each of the above crimes carries different punishments. We consider them in order:

    1. If you are convicted of tax evasion, you could be imprisoned for up to five (5) years per count, and also have to pay a $250,000 fine.
    2. If you file a false return, you can face a prison term of up to three (3) years per count, and receive a $250,000 fine.
    3. If you fail to file your tax return, you can be imprisoned for one (1) year per count, and be required to pay up to $100,000.
    4. A conviction for conspiring to commit an offense or defraud the government carries a prison term up to five (5) years per count, and a $250,000 fine.
    5. If you are convicted of a conspiracy to defraud the government with respect to claims you can face a ten (10) year prison term per count, or a fine of $250,000.
    6. If you fail to file your FBAR, you can be incarcerated for up to ten (10) years per count, and fined $500,000.

    In light of these crimes, is might be asked, “What if I just say I didn’t know about reporting my offshore accounts? Will that get me off the hook?” We answer that next.

    FBAR PENALTIES: Does the IRS presume taxpayers do not act criminally? In other words, can I just turn a “blind eye” to the IRS’s requirements to disclose my assets and avoid a possible criminal charge?

    See no evil, hear no evil, . . . and thus do no evil??” In the eyes of the IRS, this statement is false.

    Many taxpayers think that if they just decide to remain ignorant of the tax laws relating to their FBAR reporting requirements then the IRS cannot convict them of criminal charges. The IRS disagrees, and so does a recent case.

    As a reminder, “FBAR” stands for “Report of Foreign Bank and Financial Accounts.” If you have a financial interest in a foreign financial account (e.g. bank account, mutual fund, trust, or other asset) then mostly likely you will be required to provide the IRS with an annual report concerning it. This reporting requirement is imposed by the Bank Secrecy Act. Specifically, it requires that taxpayers electronically file a “Financial Crimes Enforcement Network (FinCEN) Form 114.”

    United States vs. J. Bryan Williams, Case No. 10-2230, 2012 WL 2948569 (4th Cir. 2012), Fourth Circuit held that a person cannot avoid criminal prosecution when he or she fails to become unaware of the above mentioned FBAR reporting requirements. The court found that Mr. Williams made a “conscious effort to avoid learning about reporting requirements,” and he made false answers on his tax returns, which served as evidence that he was trying to “conceal or mislead sources of income or other financial information.” The court explained that “it is reasonable to assume that a person who has foreign bank accounts would read the information specified by the government in tax forms,” and when one conceals income and other financial information “combined with the defendant’s failure to pursue knowledge of further reporting requirements as suggested [in the tax forms],” it provides a “sufficient basis to establish willfulness on the part of the defendant.”

    The key point here is that the court was able to find that the taxpayer acted “willfully” because that is a key element to finding a criminal conviction. In short, one cannot be “intentionally ignorant” of the FBAR reporting requirements—otherwise the IRS will have good reason to assert that one has acted criminally. You can read more about this case here:

    What this case means for you is that it does not help you to be “willfully ignorant” of your FBAR reporting requirement. “If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account” then you may very likely have an FBAR reporting requirement.

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