If you were previously unaware of your obligation to file Foreign Bank Account Reports (FBARs), you have a strong argument that your conduct was non-willful, which could qualify you for reduced penalties under the Streamlined Filing Compliance Procedures. However, once you are aware of your obligations, you can no longer turn a blind eye to your unreported foreign accounts or you risk being considered a willful violator, subject to harsher penalties and disqualified from using the Streamlined Procedures.
Get an FBAR Attorney’s Opinion on Willfulness
If there was ever a situation where you should NOT attempt to handle a tax issue on your own, determining whether you willfully violated your foreign reporting requirements is it. The penalties for a willful FBAR violation may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation. If you submit your amended returns under the Streamlined Procedures, but the IRS later decides that you were a willful FBAR violator, you could subject yourself to these penalties, along with the potential threat of criminal prosecution.
The Streamlined Procedures were designed to give taxpayers who were clearly non-willful an amnesty option that was less costly than the Offshore Voluntary Disclosure Program (OVDP). Unfortunately, the Streamlined Procedures do not provide amnesty against criminal prosecution if the IRS determines that your conduct was willful. This is one of the major benefits of the OVDP—a taxpayer who uses the program has assurance that they will not be criminally prosecuted.
Take Action Before It’s Too Late
If the IRS notices your FBAR violations before you amend your returns, and file your FBARS it will be too late to take advantage of the Streamlined Procedures or the OVDP. Many foreign financial institutions are voluntary giving the IRS information on accounts held by U.S. citizens and U.S. residents, as part of the Foreign Account Tax Compliance Act.
On top of that, if the IRS audits your return for a reason that is completely unrelated to your unreported foreign bank accounts, you will still be disqualified from using the amnesty programs. When you consider the liability for up to six years of FBAR violations for each unreported account, the cost of waiting to come clean with the IRS may be unacceptable.
Consult with an offshore disclosure attorney to run the numbers on the potential cost of paying the associated FBAR penalties against the cost of disclosing your unreported accounts, and ask for guidance on the issue of willfulness as is relates to your delinquent FBARs. For more information, download our free report, Nine Questions You Should Be Asking About the IRS Streamlined Filing Compliance Procedure for Unreported Foreign Accounts.