Most Americans living abroad must file a Foreign Bank Account Report (FBAR). However, not everyone realizes this obligation, and many people unwittingly violate the law and could face severe penalties.
The punishment for an FBAR violation can be severe. But by taking appropriate precautions, you can stay compliant and avoid costly penalties and other repercussions.
The FBAR is a mandatory filing requirement for US citizens, residents, and entities, including corporations, partnerships, and trusts with a financial interest in a foreign financial account that exceeds $10,000 at any time during the calendar year. It is intended to prevent Americans from engaging in tax evasion by hiding wealth overseas.
The FBAR does not assess taxes; it is strictly for reporting purposes. The FBAR is due on April 15 every year, with an automatic extension to October 15 if necessary. Failure to file does not create a tax liability but can expose a taxpayer to substantial penalties.
The IRS has delegated FBAR enforcement to the US Financial Crimes Enforcement Network (FinCEN), which is vigilant about FBAR filings. Penalties for failing to report can be severe and will vary depending on whether the failure to file was willful or non-willful and the time period over which the violation occurred.
A willful failure to file means the taxpayer knew or reasonably should have known they were required to file an FBAR but chose not to. Factors that show a willful failure to file a required FBAR include knowingly choosing not to file, any efforts made to conceal the account, failure to seek professional advice, or keeping multiple accounts to avoid detection.
The standard penalty for willful failure to file is $100,000 or 50% of the account’s maximum value at the time of the violation, whichever is higher.
In some cases, willful noncompliance can result in criminal penalties, including time in federal prison.
A non-willful FBAR violation occurs when a person did not know or could not reasonably have been expected to know they were required to file. To qualify as a non-willful failure to file, a defendant should be able to show they filed the correct information as soon as possible after discovering the error. Factors contributing to a finding that the failure to file was non-willful include the taxpayer’s background and education, whether they sought professional advice, the complexity of the foreign financial arrangement, and the actions they took to correct the mistake when they first learned about it.
The standard penalty for a non-willful violation is $10,000 per form for each year a person did not file a required FBAR. The recent US Supreme Court decision in Bittner clarifies that the IRS takes a per-form approach, meaning penalties will be imposed for every form that was not filed, as opposed to each foreign financial account.
The IRS may seek criminal FBAR penalties in severe cases of willful failure to file a required FBAR. People who knowingly and intentionally fail to report foreign bank accounts face up to $250,000 in fines per violation and up to 5 years in prison. For violations that involve a pattern of activity that exceeds $100,000 in a 12-month period, penalties can increase to fines of up to $500,000 and up to 10 years in prison.
To avoid FBAR penalties, people with foreign financial accounts should work with a qualified tax professional to ensure timely and accurate filing of the required FBAR by the annual April 15 filing deadline. Taxpayers should also keep detailed records of foreign accounts, including account numbers, names, institutions, and maximum account values during the year.
If you are facing criminal penalties for failure to file a required FBAR, retaining experienced legal representation is crucial. Hope Lefeber is a white-collar criminal defense attorney with decades of experience representing people in federal court. She works to deconstruct criminal tax cases to achieve optimal results for her clients. She will carefully examine your financial situation to identify the most effective defense strategy with the singular goal of reducing or eliminating the potential criminal penalties.
Contact the Law Offices of Hope Lefeber today to schedule a confidential appointment to discuss your situation and how she can help.
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