If you are found to be in violation of Section 5314(a) of the Bank Secrecy Act, you may become familiar with the penalties that result from your failure to file a Report of Foreign Bank and Financial Accounts, or an FBAR for short. FBAR penalties come with pitfalls and navigating the payments can be complex.
If you are unsure whether to file an FBAR or have been ordered to make payments for having not filed an FBAR, you should know that courts have recently been shutting down attempts to game the system. It is much better in the long run to keep strictly compliant with the IRS on FBAR payment matters.
Attempting to take on the government by yourself can have disastrous consequences. The Tax Law Offices of David W. Klasing are here to represent you. Our staff of California criminal tax attorneys and CPAs will help guide you through your judgment and how best to assuage you in the eyes of the government. Call our offices today at (800) 681-1295 for a consultation on your options.
In 2013, the IRS claimed as a result of an audit that Mendu willfully failed to file a complete and accurate FBAR that reflected income from three offshore bank accounts. The total amount of the penalty assessed was roughly $750,000. Mendu claimed that he made “unintentional misstatements” in his FBAR filings, and appealed the decision, which was upheld in 2017.
Mendu made a partial payment of $1,000 towards the debt. Shortly after the payment, Mendu filed a complaint in the United States Court of Federal Claims challenging the IRS’s assessment of the penalty and demanding that his $1,000 be refunded. The IRS filed a counterclaim for the remaining $749,000 of the disputed penalty. Mendu then submitted a motion to voluntarily dismiss his own refund claim, which would have in turn dispensed with the government’s counterclaim.
Mendu took these actions with one goal in mind: to create a question of jurisdiction in the Court of Federal Claims that might force the more valuable counterclaim to be refiled as a separate collection suit in federal district court. Mendu’s hope was that the subsequent collection suit would be viewed by the court as outside of the two-year statute of limitations for filing an FBAR collection suit. In other words, Mendu tried to use $1,000 and a technicality to get out of paying a hefty penalty.
Spoiler: it didn’t work. The Court of Federal Claims determined that it has jurisdiction over a partial payment FBAR penalty refund suit, because an FBAR penalty is not a tax. It also rejected Mendu’s motion to dismiss for want of jurisdiction, as well as Mendu’s motion to voluntarily dismiss the refund suit. In denying the motions, the Court decried the plaintiff’s “gamesmanship” as not “in the interest of justice.”
If you are a U.S. taxpayer that controls an aggregate amount of $10,000 or more in a foreign account or accounts, you are required by U.S. law to make certain disclosures to the IRS. The disclosures are made in the form of the Foreign Bank Account Report, or FBAR, which is submitted to the federal government on an annual basis. Failing to file an FBAR in a timely and complete manner can have costly results.
Reporting foreign assets in an FBAR becomes more complicated depending on the types of foreign assets under control. Special procedures are required for assets such as holdings in foreign mutual funds or life insurance policies.
The deadline for filing an FBAR is April 15 of the following calendar year. The most common mistake in filing FBAR penalties is failing to adhere to the deadline. So, while it is important to ensure that all of your information is accurate, it is equally as important to act early.
Penalties for failing to file an FBAR range in severity depending on the nature of the violation. Even if you genuinely believe that you aren’t required to file or are unaware of what an FBAR is, you can still be penalized.
The IRS frequently hands down enormous penalties for FBAR violations. If you are concerned about your ability to pay off the penalty, you may be able to get your debt reduced by engaging an Offer in Compromise (OIC) with the IRS. An OIC is a deal with the IRS where an honest disclosure of the taxpayer’s income, assets and overall financial position may lead the government to reduce the weight of debt owed.
You may also choose to appeal the FBAR penalty determination. However, the statute of limitations for appealing the determination is relatively narrow, and it is important for you to act quickly if you have any interest in the appeals process.
Regardless of which response you elect to pursue, don’t go through it alone. A diligent California tax criminal defense attorney will help you assess your options, estimate costs, and prepare and argue your case in front of the government if need be.
If you have been assessed an FBAR penalty and are not sure how to proceed with payment or are interested in appealing the decision, please contact The Tax Law Offices of David W. Klasing. Our experienced FBAR tax criminal defense attorneys can help with even the most complex of cases. To set up a consultation, call our offices at (800) 681-1295.
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