Today, a focus on identifying and pursuing those who exploit banking secrecy laws to evade the payment of tax has made offshore tax strategies extremely risky requiring the expertise of an experienced Los Angeles FBAR attorney. The obligation to file Report of Foreign Bank and Financial Accounts (FBAR) is set forth in the Banking Secrecy Act. The Banking Secrecy Act is but one of the many laws and tools that have eroded international banking secrecy protections that were once provided anonymity to foreign account holders in countries like Switzerland. In light of the numerous disclosure requirements, account data breaches, and international information sharing agreements the risk of detection has never been higher and consequences have never been quite so severe.
However despite the high risk of detection and harsh consequences, people still end up finding themselves in difficult situations due to FBAR filing failures. In some instances this may be due to a lack of knowledge regarding the FBAR obligations. This is often the case for expatriates in countries like the UK and China who may not be attuned to US news and the US government. However in other circumstances the violation is done voluntarily. While both situations can result in serious consequences, the former typically results in more severe consequences.
When must FBAR be filed?
An FBAR filing obligation applies to US taxpayers with foreign accounts. US taxpayers typically includes citizens, Los Angeles and other U.S. residents, business entities, and US-based trusts and estates. The obligation arises when the US taxpayer has an interest in or holds signature authority over one or more foreign financial accounts. When the aggregate balance of the account or accounts exceeds $10,000 at any time during the tax year, an FBAR must be filed.
The only way to file FBAR is online through the BSA e-fling system found on the Financial Crime Enforcement Network web portal. The FBAR disclosure requirement is satisfied when the taxpayer files FinCen Form 114. Filers with an FBAR obligation should also be sure that on Schedule C of their income tax report that they indicate appropriately whether they hold foreign financial accounts.
What are the penalties for failing to file FBAR?
As an experienced Los Angeles FBAR tax attorney, I can attest that the penalties due to a failure to file FBAR can be extremely severe. However the level of severity is contingent on whether the failure to disclose the account is considered willful. A willful violation is one that involves a voluntary or intentional violation of a known legal duty. When a FBAR violation is considered to be non-willful the penalty of $10,000 per a violation can be imposed. Since each violation and each year where a violation occurred can be punished, even fines for violations where you were simply unaware of the obligation can result in serious consequences.
If the FBAR violation is believed to be willful, even more severe penalties can be sought. Upon conviction of a willful FBAR violation the punishment of the greater of $100,000 or 50% of the account balance can be imposed. Because there is a 5-year review period for willful FBAR violations, penalties and fines can quickly exceed the account balance. Consider a foreign financial account that was not disclosed where there was a balance of $500,000. Upon conviction, the 50% penalty would be imposed because $250,000 is greater than the $100,000. Over the course of 5 years, the 50% penalty would add up to a total penalty of $1.25 million. The penalty for a willful violation would more than double the original account balance. Criminal charges can also be brought.
What are my options to correct FBAR problems?
If you think that you may have failed to fully satisfy your FBAR disclosure obligations, swift action is essential because you are likely to secure the most favorable outcome when your disclosure is voluntary. This is because the Offshore Voluntary Disclosure Program (OVDP) typically offers reduced tax consequences in exchange for taxpayers coming forward to correct their tax problems voluntarily. However if you come under investigation, OVDP will not be available. Furthermore if your foreign financial institution comes under public scrutiny for its activities or if it is listed on the IRS’ website, you will face a higher penalty rate.
However, there are a number of versions of the program – each with different advantages and drawbacks. Therefore, you should only enter into OVDP after consultation with an experienced Los Angeles FBAR attorney and CPA, like David W. Klasing. To schedule a reduced-rate FBAR consultation, call (310) 492-5583 or (800) 681-1295 today or contact us online.
Los Angeles Tax Law Offices
For any of your tax planning compliance and controversy needs in Los Angeles, contact the Lawyers at The Tax Law Offices of David W. Klasing today. Our experienced Tax Lawyers offer a reduced-rate consultation on new cases or engagements. Call (310) 492-5583 or 800-681-1295 or contact us online today to schedule a reduce rate initial consultation at our Los Angeles tax law offices, or at one of our other convenient locations across Southern California.