International FBAR Lawyer

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When American taxpayers hold overseas accounts or income generating assets that exceed certain limits, they are obligated to report these items to the IRS. These requirements fall under FBAR laws, or Report of Foreign Bank and Financial Accounts. Fully understanding these laws may require the knowledge of an FBAR Lawyer.

Although the FBAR laws have existed for decades, the IRS, with the backing of the DOJ and Congress, has recently strengthened its efforts to identify those who have not disclosed foreign holdings. The FBAR rules become more punitive if the IRS determines that the taxpayer appeared to know (or should have known) about FBAR filing requirements and willfully failed to disclose the information.

Rather than lose sleep over this confusing situation, turn to an FBAR Tax Lawyer to help you understand what you are facing and the best way to defend yourself.Even highly experienced individuals may find it difficult to understand the international rules related to FBAR laws. An FBAR Lawyer has the knowledge you need, either as a business owner or an individual taxpayer. If you are facing an FBAR-related situation with the IRS, contact the Tax Law Offices of David W. Klasing to schedule a 10-minute call with an experienced FBAR tax attorney. We know exactly how this law works, and we are ready to stand by your side throughout this process.

In light of the significant social, cultural, and financial ties to foreign nations and overseas markets, those who live and work in greater L.A. have a higher than average likelihood of holding overseas accounts or assets and requiring the need for an experienced international FBAR lawyer. Individuals holding funds or assets that exceed certain limits are required to disclose the existence of the account or accounts or face serious tax consequences.

Who is Required to File FBAR?

Report of Foreign Bank & Financial Accounts (FBAR) is a law that requires U.S. persons and U.S. taxpayers to disclose the existence of financial accounts and provide information about the accounts. The duty to file FBAR is triggered when a U.S. person holds or has signature authority over a foreign account or accounts with an aggregate balance in excess of $10,000.

IN fact, it is irrelevant whether the accounts are in excess of the filing threshold for one hour or one month – once the $10,000 filing threshold is passed, an obligation to file FBAR exists.

The foreign account or accounts are only required to momentarily exceed $10,000 for a filing obligation to be triggered.

What Constitutes an FBAR Account?

Almost any account that a foreign financial institution maintains for you will count toward your FBAR $10,000 limit.

These accounts include standard types of foreign financial accounts, such as savings, deposits, time deposits, and securities. Checking, brokerage, investment, and savings accounts all qualify for FBAR monitoring.

But you also have to report amounts in less common types of foreign financial accounts and situations, such as commodity futures or options. Should you hold a whole life insurance policy or an annuity policy in a foreign account, this also qualifies for FBAR tracking.

FBAR Requires Disclosure of Foreign Accounts

Obligations regarding Report of Foreign Bank and Financial Accounts, or FBAR, has been present in the laws of the United States for many years. However it is only in relatively recent years that Congress, the IRS, and the DOJ have placed an emphasis on the identification and enforcement of offshore tax evasion. To address the perceived problem of wealthy Americans use of foreign accounts and trusts to avoid tax, Congress not only strengthened the penalties one could face for a willful FBAR violation, but also created new violation that can punish even inadvertent failures to comply with the disclosure law.

How Likely is Your Foreign Bank Account to be Found Out?

Unfortunately for holders of foreign assets and offshore accounts, the risk of detection of your accounts has never been higher. The passage and expansion of FATCA means that more than 100 countries across the globe have already signed tax information sharing agreements with the United States government. Foreign banks and foreign financial institutions located within these jurisdictions are required to turn over information regarding U.S. linked accounts. The IRS and Department of Justice then use this banking and tax data to identify U.S. taxpayers who have failed to disclose and pay taxes on their foreign accounts or assets. The rapid expansion of FATCA means that secret offshore accounts are no longer a viable strategy and subject the holder to an unreasonable risk of severe financial and legal harm.

What Account & Asset Information Must I Disclose in My FBAR Filing?

There are an array of accounts and assets that taxpayers must disclosure under FBAR. These accounts and assets may include:

• Shares or interest in shares in a foreign mutual fund.
• Assets held in a foreign trust.
• Savings accounts in a foreign bank.
• Checking accounts in a foreign bank.
• Foreign stocks or securities.
• Interests in foreign retirement plans.
• Foreign life insurance plan.
• Foreign financial accounts where you hold signature authority.

These account types are merely a few of the accounts covered by FBAR. Taxpayers must be sure to make a comprehensive disclosure when they file or risk significant penalties for an FBAR violation. Of further note is the fact that FBAR may not be the only disclosure obligation held by the taxpayer. In many cases the taxpayer is required to make an additional disclosure to satisfy parallel FATCA disclosure obligations.

How Can a Serious Offshore Tax Situation Develop?

Most people do not intend to fail to meet their tax or information filing obligations. In light of the serious offshore and FBAR penalties that exist, few people would leave their taxes in an unfinished or incomplete state. However the people who do intentionally endeavor to conceal their offshore accounts and income must be concerned about the possibility of criminal tax charges. While many who are noncompliant are not likely candidates for criminal charges, all people who are noncompliant with their FBAR and other offshore account filings face the onerous offshore penalties that can be imposed upon conviction.

Consider a young professional who immigrated to the United States in 2007. When the professional came to the United States he had a bank account in China which he kept to facilitate sending money back to his family. As the professional’s success in the United States grew, so did his domestic and foreign bank accounts. In 2010, the professional’s Chinese bank account balance exceeded $10,000 for the first time thereby giving rise to an FBAR disclosure obligation. By 2015, the balance in the account had reached more than $400,000 with a modest yearly income from interest. The professional has never filed FBAR or disclosed the account.

Information sharing through FATCA is likely to reveal the existence of the professional’s account. Furthermore, the professional’s recent immigration status coupled with his relatively high income make him a more likely target to be selected for audit.

FBAR related audits can lead to incredibly harsh financial penalties when the government agency believes that the compliance failure was willful. First, the underpayment of tax can be penalized similarly to that of domestic tax fraud or evasion. That is, the taxpayer will pay tax on the concealed income and additional penalties including the 75% civil fraud penalty. However, in addition to the typical audit penalties, the taxpayer can also face up to a 50% FBAR penalty for each year, and each account that was not disclosed. In most FBAR compliance situations involving willfulness, the fines and penalties sought regularly exceed the original account balance.

Understanding Penalties for Willful FBAR Omissions

In general, U.S. taxpayers are required to submit their FBAR filing by June 30th of each calendar year if they hold or control foreign accounts where the aggregate balance exceeds $10,000. The taxpayer must make a comprehensive and accurate disclosure or he or she can face serious tax charges. The penalty for accidental non-compliance with FBAR can be punished by a fine of up to $10,000. That $10,000 fine can be imposed for each violation meaning that a $10,000 fine can be imposed for each year where the account went unreported. IN situations where willfulness is not implicated, the IRS can typically look back for up to three years.

However, if your actions are interpreted as being willful, then penalties become even more severe. A willful act can include someone who knows that they have a duty to file FBAR, but voluntarily decides to neglect this duty. Furthermore, a taxpayer who is willfully blind and intentionally avoids learning about a legal obligation or duty has also acted willfully. In short, willfulness involves a voluntary or intentional disregard of a known legal duty. Individuals convicted of a willful failure to fulfill their FBAR obligation face even more harsh penalties. A fine of $100,000 or 50 percent of the original balance – whichever is greater – can be imposed. Furthermore, like the non-willful version, each violation can be punished but for matters involving willfulness the IRS can look back six years. Willful FBAR penalties regularly exceed the value of the account in question.

FBAR Audits

If you are facing the possibility of an FBAR – Foreign Bank Account Reporting – audit, or criminal investigation, from the IRS, you would be wise to seek qualified international tax defense counsel immediately. As this is a potential criminal issue, the original preparer is the absolutely wrong person to approach as they are likely to be government witness number one against you should the government choose to prosecute.

Can the Failure to File FBAR Lead to a FBAR Audit?

In today’s new global banking regime established under FATCA that emphasizes disclosure and information sharing, the risk of having an undisclosed account detected has never been greater. Information from foreign nations is being used by the IRS to identify taxpayers who fail to include sources of foreign taxable income on their U.S. income tax filings. In short, the IRS is expanding its use of information matching. The agency is using these and other protocols and practices to identify and pursue noncompliant taxpayers. Your failure to file FBAR and disclose all sources of income on your income tax return can significantly increase your risk of facing a FBAR audit.

In the not so distant past, utilizing foreign banks or financial accounts was a patently illegal but often successful way of shielding taxable income and hiding offshore assets and holdings from the IRS and from U.S. creditors. For many decades, this practice was largely ignored and for the most part unenforced. By utilizing foreign holdings, investors would diversify their finances and simultaneously protect their holdings from a significant financial catastrophe in the United States. A couple of decades ago, the risk of having the IRS discover this type of account was almost unheard of (not that anyone in our office ever counseled anyone to do this….)

In modern times, though, Under FACTA, the IRS has numerous tools at its disposal to help it track down income and assets in these foreign jurisdictions. More than 100 different foreign countries have signed agreements with the United States to report any information they have regarding accounts that American taxpayers hold in their respective countries. This means that you have little to no chance of maintaining a secret bank account in a foreign jurisdiction at present.

How to Correct FBAR Problems Before an Audit Occurs

The best way to fix past FBAR and offshore account issues is to be proactive and to make a timely entry into Offshore Voluntary Disclosure or Streamlined Disclosure. Entry into these programs can mitigate the potential tax consequences you face and allow you to become compliant with the U.S. Tax Code. However, an additional delay can result in ineligibility for reduced penalties because an investigation into one’s offshore activities will make one ineligible. Furthermore, if one’s foreign bank is identified on the Foreign Financial Institutions or Facilitators List prior to entry into the program, an increased offshore penalty of 50% rather than 27.5% may apply.

Taxpayers May Also Have a FATCA Disclosure Duty

FATCA not only requires U.S. taxpayers to disclose foreign assets and accounts, it also requires foreign banks and financial institutions to provide information about U.S. linked accounts to the United States government. The U.S. government uses this information to identify taxpayers who have failed to comply with their disclosure obligations.

Under FATCA, taxpayers are required to disclose foreign assets and accounts. Some taxpayers may be required to only make FBAR disclosures while others may be required to disclosure under both reporting regimes. While both FBAR and FATCA require the disclosure of foreign accounts, FATCA includes a broader array of assets in its reporting requirements. Furthermore, while the FBAR reporting threshold is constant, the FATCA filing obligation threshold is dependent upon one’s tax filing status and whether one is living within the borders of the United States or abroad.  Generally speaking sole filers and individuals living within the United States have a lower reporting threshold. Married taxpayers who file jointly and taxpayers who live outside of the U.S. can hold greater amounts of foreign assets before being required to disclose under FATCA.

OVDP can Mitigate Your Exposure to Tax Consequences

While the penalties that a non-compliant taxpayer can face are severe, the Offshore Voluntary Disclosure Program can mitigate the consequences you face provided that you make a comprehensive disclosure of all past compliance failures. While there is an offshore penalty, paying this penalty is undoubtedly preferable to facing the much more severe potential consequences of a tax enforcement action. To schedule a reduced-rate consultation call an experienced international FBAR lawyer at the Tax Law Offices of David W. Klasing at 800-681-1295 or contact us online today.