FBAR Violations

What to Do If You Are Worried About Undisclosed Foreign Bank Accounts

July 6, 2017 | by Dennis N. Brager

United States taxpayers have an obligation report their interest in any foreign financial accounts with regard to the balances in those accounts. If the aggregate balance of all such accounts exceeds $10,000 at any point during the year then you are also required to file a Foreign Bank Account Report (FBAR).

Despite this legal requirement, many taxpayers do not file required FBARs. Some may be unaware of the requirement, particularly if they are not a U.S. citizen, but are required to file a tax return because they are “green card” holders or have been substantially present in the United States. Other violations may be less excusable, or—as the IRS designates them— “willful”.

If you have undisclosed foreign financial accounts, you should consult with a tax attorney with FBAR experience, determine your exposure to risk, and select a course of action to minimize that risk.

How to Choose an FBAR Attorney

July 3, 2017 | by Dennis N. Brager

There is no specific designation as an “FBAR attorney”, but many taxpayers with undisclosed foreign financial accounts need to talk to someone with FBAR experience about their potential liability and what actions they can take to mitigate risks. A good FBAR attorney is really just a tax attorney who has experience with Foreign Bank Account Reports (FBARs), and is familiar with tax litigation, criminal tax defense, and the various voluntary disclosure options that can be used to come into FBAR compliance.

FBAR Experience

You have an FBAR problem if you are a U.S. person who failed to file an FBAR and/or report income from foreign financial accounts on your tax return. You are required to file an FBAR if you meet the following two requirements:

Avoid These Mistakes When Filing FBARs

May 22, 2017 | by Dennis N. Brager

Some taxpayers are not aware of the requirement that they file a Foreign Bank Account Report (FBAR) if the value of their foreign financial accounts exceeds $10,000 at any time during the year. Even taxpayers who are aware of their obligation to disclose offshore bank accounts may not understand every situation that will trigger an FBAR filing requirement, or the methods for disclosing a previously unreported foreign account.

The following are some of the most common mistakes when filing FBARs:

Failure to file FBARs

What is Reasonable Cause for Failure to File an FBAR?

May 19, 2017 | by Dennis N. Brager

The IRS has the authority to impose civil and criminal penalties for the failure to file Foreign Bank Account Reports (FBARs), but it is has the authority to impose lesser penalties, or none at all, in certain cases. If there is a reasonable cause for your FBAR violations, and your conduct was non-willful, you may not have to pay any penalties at all.

Internal Revenue Manual (IRM) 4.26.16.6 states that when an FBAR violation is found, the IRS examiner must either issue a Letter 3800 or issue a penalty. The Letter 3800 is warning letter notifying you of your apparent FBAR violations. Some taxpayers may get lucky and receive a warning without any FBAR penalties.

The civil penalties for non-willful FBAR violations are up to $10,000 per account per year, for up to six years. However, these are the maximum penalties allowable. The IRS has the discretion to reduce or eliminate the penalties in some cases.

Is My FBAR Non-Compliance Considered Non-Willful?

May 15, 2017 | by Dennis N. Brager

The failure to file Foreign Bank Account Reports (FBARs) can result in large penalties, but there are two separate penalties structures for willful and non-willful conduct. If your conduct is determined to be willful, you could have to pay $100,000 or 50 percent of the balance of the offshore account. For non-willful violations, the penalty is $10,000 per account per year.

Another situation where you must determine whether your conduct is willful is when attempting to disclose your unreported offshore bank accounts. You have different options depending on whether or not your failure to report these amounts was willful or not. Non-willful FBAR violations may be eligible for the streamlined filing compliance procedures, while willful FBAR violations are not.

Options for Disclosing Unreported Foreign Income

Considerations When Submitting Delinquent International Information Returns

May 12, 2017 | by Dennis N. Brager

The IRS procedure for submitting delinquent international information returns such as Forms 3520, 3520A, Form 5471, or Form 8938, along with a reasonable cause statement is one of four options the IRS allows for taxpayers wish to come into compliance with their offshore filing requirements. This procedure has some benefits over the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Procedures, but it also has its drawbacks.

The main benefit is that if the IRS accepts your reasonable cause statement and submission of delinquent international information returns, you will have all penalties waived. Both the OVDP and the Streamlined Procedures (at least for domestic taxpayers) involve paying penalties, with the OVDP requiring much higher penalties and eight years of tax returns.

The drawback is that if your reasonable cause statement is rejected, you may be responsible for the full amount of the international reporting forms penalties.

Man Pleads Guilty After Hiding Swiss Bank Accounts

May 10, 2017 | by Dennis N. Brager

A case from a few years ago involving undisclosed Swiss bank accounts demonstrates the pitfalls of failing to disclose foreign financial accounts, as well as what happens when you lie to IRS special agents.

A New York resident pleaded guilty to corruptly endeavoring to obstruct and impede an investigation by the Internal Revenue Service after repeatedly lying about his assets in Swiss bank accounts. Not only did the taxpayer fail to report his foreign financial assets, but he also told several IRS agents that he had no foreign financial assets.

For the tax years 2001 through 2010, Georges Briguet, the owner of now defunct famed French restaurant Perigord, failed to report his foreign financial accounts on his tax return. He did not report the income from these accounts or pay taxes on this income. He had placed around 7 million Swiss Francs in a Swiss bank account in 1992.

Should I Take Advantage of the IRS Offshore Voluntary Disclosure Program?

April 18, 2017 | by Dennis N. Brager

The IRS Offshore Voluntary Disclosure Program (OVDP) offers taxpayers with unreported income from foreign financial accounts a chance to come into compliance with the law. The program benefits taxpayers by offering lower penalties and eliminating the threat of criminal prosecution for failing to file Foreign Bank Account Reports (FBARs).

Failure to file an FBAR can result in both criminal and civil penalties. The criminal penalties can be fines of up to $250,000 and five years in jail. The civil penalties for a willful failure to file an FBAR can be up to the greater of $100,000 or 50 percent of the account balance.

To avoid these onerous penalties, taxpayers can come into compliance in a variety of ways. They can file the past due returns quietly, which is known as a quiet disclosure. They can use the Streamlined Filing Compliance Procedures, or the OVDP, depending on the circumstances of their offshore bank account problems.

Do I Have to File an FBAR If I’m Not a U.S. Citizen?

April 11, 2017 | by Dennis N. Brager

The Bank Secrecy Act may require you to file a FinCEN 114, Report of Foreign Bank and Financial Accounts (FBAR), even if you are not a U.S. Citizen. The FBAR must be filed annually by all “United States Persons”, which includes U.S. citizens, U.S. residents, and certain entities. The FBAR must be filed if your total interest in foreign accounts exceeds $10,000 at any point during the calendar year.

FBAR Filing Requirements for Non-Citizens

The IRS has its own rules for determining if you are a resident for tax purposes. If you meet either the green card test or the substantial presence test, the IRS considers you a resident, and you must comply with all tax filing requirements, including filing an FBAR.

Streamlined Filing Procedures for Taxpayers Living Outside the United States

March 22, 2017 | by Dennis N. Brager

The IRS streamlined filing compliance procedures allow eligible taxpayers to avoid potentially disastrous penalties and resolve their offshore bank account problems. Taxpayers who have failed to file Foreign Bank Account Reports (FBARs) and report their income from foreign financial accounts on their tax returns can face penalties of up to $10,000 per violation for non-willful violations, and penalties of up to $250,000 and five years in prison for violations that are deemed willful; not to mention civil penalties of over $100,000 per violation, at a minimum.

The streamlined procedures can help taxpayers correct their past mistakes and avoid these penalties. There are different procedures, and different penalties for taxpayers that reside in the U.S. and taxpayers that live outside the U.S., but both types of taxpayers are eligible for this program.

Most importantly, these procedures are only available to taxpayers whose failure to file FBARs was non-willful. This means the conduct must have been due to negligence, inadvertence, mistake, or a good faith misunderstanding of the law. Taxpayers who have willfully failed to file FBARs may be eligible for the Offshore Voluntary Disclosure Program, which has some of the same benefits, but also involves much higher penalties.