Is your bank account a Secret? 

June 30 2014 is the annual deadline for U.S. taxpayers, (including resident aliens) to timely reports of foreign financial accounts for year ending 2013.  (Note that the reports must be received by that date so we advise sending them in a couple of weeks prior to that date). The report form (TD 90-22.1) known as an FBAR is due if a U.S. taxpayer has direct or indirect control over an offshore financial account (such as a bank / brokerage account or other investment, broadly defined) that had an account balance/s in aggregate of $10,000 or more at any time during the calendar year.

Failure to file and for the IRS to receive an FBAR by June 30 may result in penalties which range from a warning letter (for reasonable cause) to $10,000 per year per account for "non-willful" violations (late but otherwise accurate filing not excused for reasonable cause), to the greater of $100,000 or 50% of the account balance per year per account for "willful" failure to file (knowing and intentional or willfully blind conduct) to criminal prosecution. There is an increasing likelihood that the IRS will seek the "willful" civil penalties for taxpayer's who have failed to file FBAR for years prior to 2012 and who have failed to come forward and enter the Offshore Voluntary Disclosure Program. 

​The reasons for this are as follows:First, since 2009 there have been three (3) formal opportunities for U.S. taxpayers to come forward.  There was the 2009, 2011, 2012 and now the 2013 programs.

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IRS FBAR Voluntary Disclosure Program updates

For years the IRS has been pursuing - the disclosure of information regarding undeclared interests of U.S. taxpayers (or those who ought to be U.S. taxpayers in foreign financial accounts. 

Originally appeared on hqexperts.org

by Lance Wallach 


On June 26, 2012 the IRS released IR-2012-64/65 and updated Frequently Asked Questions (FAQs) providing updated guidance regarding the currently pending offshore voluntary disclosure program (the initial terms of the 2012 OVDP were set forth in IR-2012-5 released on January 9, 2012). The OVDP follows on the success of the 2009 Offshore Voluntary Disclosure Program (the 2009 OVDP) and the 2011 Offshore Voluntary Disclosure Initiative (the 2011 OVDI), which were announced many years after the 2003 Offshore Voluntary Compliance Initiative (OVCI) and the 2003 Offshore Credit Card Program (OCCP). 

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Jail time for failure to file TD F 90-22.1 Report of Foreign Bank and Financial Accounts


   A former UBS, AG ("UBS") client from Miami Beach, Florida was sentenced to four months in federal prison for willfully failing to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR"), for the UBS account the man held with as much as $4,000,0000 in it. This information was released by the U.S. Attorney for the Southern District of Florida on July 25 2012.

   The former UBS client paid a civil penalty of $2,000,000 related to the $4,000,000 high account balance stemming from tax year 2006. Additionally, the former UBS client was sentenced to four months in federal prison, three years of supervised release, 250 hours of community service and a $20,000 criminal fine.
   The UBS account related to two offshore corporations owned by the man, one in the Virgin Islands and one in the Republic of Panama. These corporations opened accounts at UBS. The man was not named as the direct owner but instead he was deemed only the "beneficial owner." The accounts with UBS were opened from tax years 2005 through 2007.
   It is stated that the man was aware of the obligation on the FBAR to report as he had previously filed FBARs for other offshore corporations. An FBAR is required to be filed by both U.S. citizens and residents who have a financial interest in or signatory authority over a non-U.S. financial account with a value of more than $10,000 at any point during the tax year. The $10,000 amount is an aggregation of all non-U.S. financial accounts and not just an analysis on an account-by-account basis.
   The information on the former UBS client was turned over after UBS agreed in February 2009 to pay $780,000,000 under a deferred prosecution agreement to settle the claim that UBS conspired to defraud the U.S. by impeding the Internal Revenue Service ("IRS"). UBS also agreed to turn over information to the U.S. Department of Justice on 300 account holders. 
   A US citizen or resident that held an account with UBS or any other institution that has not filed the necessary FBARs for the last eight tax years, should immediately reach out to get help to discuss any potential issues they may have and their alternatives. Filing for amnesty and then opting out are two options that our former IRS agents have 
successfully done for our clients. If not done properly it can be a disaster. We suggest you use a CPA with prior experience with the IRS international division.


FBAR INTERNATIONAL TAXES

Originally appeared on Idea.com in August 2011by Lance Wallach


​The FBAR deadline is here. Filing deadline for the IRS's offshore tax amnesty(called the Offshore Voluntary Disclosure Initiative). If you don't properly comply you will get caught. For those with current offshore accounts, the deadline to file the annual Report of Foreign Bank and Financial Accounts is here

expert court witness expert testimony

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FBAR u need an expert!

Lance Wallach


​If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). See the ‘Who Must File an FBAR’ section below for additional criteria.

Current FBAR Guidance

New Due Date for FBARs

The new annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15. This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the “Act”). Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the federal income tax filing season.

The Act also mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.

Please see the section entitled “Reporting and Filing Information” below for more information.

Filing deferral for certain individuals with signature authority only, effective through April 15, 2018

FinCEN Notice 2016-1 extended the due date for filing FBARs by certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity, to April 15, 2018.

Chronology Pertaining to This Filing Deferral

May 31, 2011 (rev. June 6, 2011)FinCEN Notice 2011-1 provides filing extension to June 30, 2012 extension for:

An employee or officer of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of a controlled person of the entity; or
An employee or officer of a controlled person of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of the entity, the controlled person, or another controlled person of the entity.

For purposes of FinCEN Notice 2011-1, a controlled person is a United States or foreign entity more than 50 percent owned (directly or indirectly) by an entity under 31 CFR § 1010.350(f)(2)(i)-(v).

June 17, 2011FinCEN Notice 2011-2 extended due date for filing to June 30, 2012, for certain officers of employees of investment advisors registered with the Securities and Exchange Commission who have signature authority over, but no financial interest in, foreign financial accounts of their employer.February 14, 2012FinCEN Notice 2012-1 extended the deadline to file to June 30, 2013, for those persons identified in Notice 2011-1 and Notice 2011-2.December 26, 2012FinCEN Notice 2012-2 further extended the due date for filing to June 30, 2014.December 17, 2013FinCEN Notice 2013-1 further extended the due date for filing to June 30, 2015.November 24, 2014FinCEN Notice 2014-1  further extended the due date for filing to June 30, 2016.December 8, 2015FinCEN Notice 2015-1  further extended the due date for filing to April 15, 2017December 16, 2016FinCEN Notice 2016-1 further extended the due date for filing to April 15, 2018

Who Must File an FBAR

United States persons are required to file an FBAR if:

the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:

Certain foreign financial accounts jointly owned by spouses
United States persons included in a consolidated FBAR
Correspondent/Nostro accounts
Foreign financial accounts owned by a governmental entity
Foreign financial accounts owned by an international financial institution
Owners and beneficiaries of U.S. IRAs
Participants in and beneficiaries of tax-qualified retirement plans
Certain individuals with signature authority over, but no financial interest in, a foreign financial account
Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
Foreign financial accounts maintained on a United States military banking facility.

Review the FBAR instructions for more information on the reporting requirement and on the exceptions to the reporting requirement.

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.

The FBAR is a calendar year report and must be filed on or before April 15 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System. 

The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. Prior to the passing of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, there was no provision for requesting an extension of time to file an FBAR. The Act mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required. 

Filers who submit FBARs jointly with spouses or who wish to have a third party preparer file their FBARs on their behalf can use FinCEN Report 114a, Record of Authorization to Electronically File FBARs. FinCEN Report 114a is not submitted when filing an FBAR but, instead, is kept in FBAR records maintained by the filer and the account owner, and must be made available to FinCEN or IRS upon request.

Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to civil monetary penalties. For penalties that are assessed after August 1, 2016, whose associated violations occurred after November 2,2015, the IRS may assess an inflation-adjusted civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the inflation-adjusted penalty 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. For guidance on circumstances, including natural disasters, that prevent timely filing of an FBAR, see FIN-2013-G002 (June 24, 2013).

Note regarding civil penalty assessment prior to August 1, 2016: For those violations occurring on or before November 2, 2015, the IRS may assess a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.

U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement. A chart providing a comparison of Form 8938 and FBAR requirements may be accessed on the IRS Foreign Account Tax Compliance Act Web page.

Offshore Voluntary Disclosure Program

On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Programfollowing continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. Although the program does not have a closing date, the IRS may end the program at any time.

Streamlined Filing Compliance Procedures

On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to non-resident U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.

On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States; reference IR-2014-73. For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue. For more information, go to Streamlined Filing Compliance Procedures.

Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

 If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). See the ‘Who Must File an FBAR’ section below for additional criteria.

Current FBAR Guidance

New Due Date for FBARs

The new annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15. This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the “Act”). Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the federal income tax filing season.

The Act also mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.

Please see the section entitled “Reporting and Filing Information” below for more information.

Filing deferral for certain individuals with signature authority only, effective through April 15, 2018

FinCEN Notice 2016-1 extended the due date for filing FBARs by certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity, to April 15, 2018.

Chronology Pertaining to This Filing Deferral

May 31, 2011 (rev. June 6, 2011)FinCEN Notice 2011-1 provides filing extension to June 30, 2012 extension for:

An employee or officer of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of a controlled person of the entity; or
An employee or officer of a controlled person of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of the entity, the controlled person, or another controlled person of the entity.

For purposes of FinCEN Notice 2011-1, a controlled person is a United States or foreign entity more than 50 percent owned (directly or indirectly) by an entity under 31 CFR § 1010.350(f)(2)(i)-(v).

June 17, 2011FinCEN Notice 2011-2 extended due date for filing to June 30, 2012, for certain officers of employees of investment advisors registered with the Securities and Exchange Commission who have signature authority over, but no financial interest in, foreign financial accounts of their employer.February 14, 2012FinCEN Notice 2012-1 extended the deadline to file to June 30, 2013, for those persons identified in Notice 2011-1 and Notice 2011-2.December 26, 2012FinCEN Notice 2012-2 further extended the due date for filing to June 30, 2014.December 17, 2013FinCEN Notice 2013-1 further extended the due date for filing to June 30, 2015.November 24, 2014FinCEN Notice 2014-1  further extended the due date for filing to June 30, 2016.December 8, 2015FinCEN Notice 2015-1  further extended the due date for filing to April 15, 2017December 16, 2016FinCEN Notice 2016-1 further extended the due date for filing to April 15, 2018

Who Must File an FBAR

United States persons are required to file an FBAR if:

the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:

Certain foreign financial accounts jointly owned by spouses
United States persons included in a consolidated FBAR
Correspondent/Nostro accounts
Foreign financial accounts owned by a governmental entity
Foreign financial accounts owned by an international financial institution
Owners and beneficiaries of U.S. IRAs
Participants in and beneficiaries of tax-qualified retirement plans
Certain individuals with signature authority over, but no financial interest in, a foreign financial account
Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
Foreign financial accounts maintained on a United States military banking facility.

Review the FBAR instructions for more information on the reporting requirement and on the exceptions to the reporting requirement.

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.

The FBAR is a calendar year report and must be filed on or before April 15 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System. 

The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. Prior to the passing of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, there was no provision for requesting an extension of time to file an FBAR. The Act mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required. 

Filers who submit FBARs jointly with spouses or who wish to have a third party preparer file their FBARs on their behalf can use FinCEN Report 114a, Record of Authorization to Electronically File FBARs. FinCEN Report 114a is not submitted when filing an FBAR but, instead, is kept in FBAR records maintained by the filer and the account owner, and must be made available to FinCEN or IRS upon request.

Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to civil monetary penalties. For penalties that are assessed after August 1, 2016, whose associated violations occurred after November 2,2015, the IRS may assess an inflation-adjusted civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the inflation-adjusted penalty 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. For guidance on circumstances, including natural disasters, that prevent timely filing of an FBAR, see FIN-2013-G002 (June 24, 2013).

Note regarding civil penalty assessment prior to August 1, 2016: For those violations occurring on or before November 2, 2015, the IRS may assess a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.

U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement. A chart providing a comparison of Form 8938 and FBAR requirements may be accessed on the IRS Foreign Account Tax Compliance Act Web page.

Offshore Voluntary Disclosure Program

On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Programfollowing continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. Although the program does not have a closing date, the IRS may end the program at any time.

Streamlined Filing Compliance Procedures

On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to non-resident U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.

On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States; reference IR-2014-73. For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue. For more information, go to Streamlined Filing Compliance Procedures.

Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

 


FBAR OVDI Want to go to Jail? 


The federal government is aggressively pursuing taxpayers with undisclosed foreign accounts and unreported foreign income using information furnished from the foreign banks and other sources. If you have not yet applied for hte OVDP you are at risk. Many individuals iwth UBS accounts(and elsewhere) have recently been convicted.

1. Jan. 30, 2012 - Stephen M. Kerr, Michael Quiel and Christopher M. Rusch were charged in Phoenix, Ariz., with conspiracy to defraud the IRS for concealing millions of dollars in assets in numerous secret Swiss bank accounts held at UBS and elsewhere. 

2. Jan. 20, 2012 - Kenneth Heller, of New York, N.Y., was sentenced to 45 days in prison and two years of supervised release. Heller pleaded guilty to income tax evasion in June 2011 and admitted to hiding more than $26.4 million in a bank account at UBS AG. He has agreed to pay a civil penalty of over $9.8 million. 

3. Jan. 11, 2012 - Michael Reiss, a doctor, professor and medical researcher, of Princeton, New Jersey, was sentenced to eight months in a community confinement center for failing to file FBAR's with the IRS. Reiss pleaded guilty in August 2011 and agreed to pay back taxes of at least $400,000 and to pay a civil penalty of over $1.2 million. 


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2018 FBAR criminal penalties should be on the mind of any US taxpayer who willfully failed to file his FBARs or knowingly filed a false FBAR. In this essay, I would like to do an overview of the 2018 FBAR criminal penalties that these noncompliant US taxpayers may have to face.

2018 FBAR Criminal Penalties: Background Information

A lot of US taxpayers do not understand why the 2018 FBAR criminal penalties are so shockingly high. These taxpayers question why failing to file a form that has nothing do with income tax calculation should potentially result in a jail sentence.

The answer to this questions lies in the legislative history of FBAR. First of all, it is important to understand that FBAR is not a tax form. The Report of Foreign Bank and Financial Accounts (“FBAR”) was born in 1970 out of the Bank Secrecy Act (“BSA”), in particular 31 U.S.C. §5314. This means that the initial primary purpose of the form was to fight financial crimes, money laundering and terrorism. In other words, FBAR was not created as a tool against tax evasion.

Hence, the FBAR penalties were structured from the very beginning for the purpose of punishing criminals engaged in financial crimes and/or terrorism. This is why the FBAR penalties are so severe and easily surpass the penalties of any tax form.

It was only 30 years later, after the enaction of The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”), that the enforcement of FBAR was turned over to the IRS. The IRS almost immediately commenced using FBAR to fight the tax evasion schemes that utilized offshore accounts.

The Congress liked the IRS initiative and responded with the American Jobs Creation Act of 2004 (“2004 Jobs Act”). The 2004 Jobs Act further increased the FBAR penalties, including the creation of the non-willful penalty of up to $10,000 per violation.

2018 FBAR Criminal Penalties: Description

Now that we understand why the 2018 FBAR criminal penalties are so severe, let’s describe what they penalties actually look like. There are three different 2018 FBAR criminal penalties associated with different FBAR violations.

The first criminal penalty may be imposed under 26 U.S.C. 5322(a) and 31 C.F.R. § 103.59(b) for willful failure to file FBAR or retain records of a foreign account. The penalty is up to $250,000 or 5 years in prison or both.

When the willful failure to file FBAR is combined with a violation of other US laws or the failure to file FBAR is “part of a pattern of any illegal activity involving more than $100,000 in a 12-month period”, then the IRS has the option of imposing a criminal penalty under 26 U.S.C. 5322(b) and 31 C.F.R. § 103.59(c). In this case, the penalty jumps to incredible $500,000 or 10 years in prison or both.

Finally, if a person willingly and knowingly files a false, fictitious or fraudulent FBAR, he is subject to the penalty under 31 C.F.R. § 103.59(d). The penalty in this case may be $10,000 or 5 years or both.

 

If you were required to file an FBAR but you have not done it, you need to contact Lance Wallach Today!

516-938-5007

The IRS has announced it will end the Offshore Voluntary Disclosure Program (OVDP) on Sept. 28, 2018.

This program, which began in 2009 and was overhauled in 2014, provides U.S. taxpayers with foreign financial accounts a way to come forward and report their foreign accounts and the related income while minimizing potential civil penalties. A key feature of the program includes protection from criminal prosecution for failing to disclose foreign financial accounts and income. For this protection, taxpayers are assessed a one-time 27.5 percent penalty based on the maximum value of undisclosed foreign financial accounts.

The IRS is now announcing the end of this program to give taxpayers the next few months as a last chance to come forward with any undisclosed foreign financial assets and take advantage of this specific program before it ends.

Due to the ongoing enforcement of the Foreign Account Tax Compliance Act (FATCA), taxpayers are still coming forward filing delinquent foreign assets and international information returns. As a result, the IRS will continue offering the following programs to assist taxpayers who need to come into compliance:

IRS Criminal Investigation Voluntary Disclosure Program
Streamlined filing compliance procedures
Delinquent FBAR submission procedures
Delinquent international information return submission procedures

Although the OVDP program will be closed on Sept. 28, 2018, taxpayers may still take advantage of these favorable procedures during the interim period. For more information or to see if you qualify for the OVDP or other programs listed above, contact 

Despite the closure of ODVP, the Streamlined Filing Compliance Procedures (SFCP) will remain in place for taxpayers who might not have been aware of their filing obligations. About 65,000 additional taxpayers come into compliance under the SFCP. As with OVDP, the IRS has said it may end SFCP at some point.

Don't think that the ramping down means IRS no longer cares about offshore tax avoidance. "The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics," said Don Fort, Chief, IRS Criminal Investigation. "Stopping offshore tax noncompliance remains a top priority of the IRS."

IRS Says If You're Willful, Penalties Hit 100%, $10,000 If You're Not 


​What’s an FBAR? Now Called FinCEN Form 114, an FBAR is a non-U.S. bank account report. If you have non-U.S. bank accounts that aggregate over $10,000 at any time during the year, you need to file one. You must file if you are a signatory even if the money is not yours beneficially.

FBARs are distinct from tax returns. You must report any income from the accounts on your 1040, even though the bank does not send out Forms 1099 like U.S. banks. And you must file an FBAR. Although FBARs have been required since 1970, they were not widely discussed until 2008 when the UBS offshore bank scandal exploded.

FBAR penalty exposure—civil and criminal—is quite high, worse than tax evasion. FBARs have figured prominently in offshore account cases, netting the IRS big penalties. As a result, most people with undisclosed offshore accounts since 2009 have gone into the IRS Offshore Voluntary Disclosure Program (OVDP).​

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The Internal Revenue Service (IRS) has announced that Offshore Voluntary Disclosure Program (OVDP) is coming to a close. The program, which has been around in its current form since 2014, will officially end on September 28, 2018. That gives taxpayers a little over six months to come forward with previously undisclosed foreign financial assets.

"Taxpayers have had several years to come into compliance with U.S. tax laws under this program," said Acting IRS Commissioner David Kautter. "All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so."

Under current law, U.S. taxpayers have an obligation to report certain offshore assets. Each "US person" with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file a Report of Foreign Bank and Financial Accounts (more commonly, FBAR) if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income. Some exceptions apply (click here for more).

Additional filing requirements were written into the Foreign Account Tax Compliance Act (more commonly called "FATCA") which was signed into law in March of 2010. Failure to comply with FATCA or file an FBAR can result in civil penalties, criminal penalties or both: the list of potential penalties that may apply is distressingly long.

Many taxpayers were not aware of their filing requirements. In order to encourage compliance, the IRS launched a tax amnesty program which allowed U.S. taxpayers to avoid criminal prosecution for not reporting foreign accounts in 2009. That program drew to a close on October 15, 2009. About 15,000 taxpayers took advantage of the program.

Following FATCA, in 2011, the IRS announced a new amnesty program to take its place. But since amnesty is such an ugly word, the IRS called it "a special voluntary disclosure initiative." The official title was the 2011 Offshore Voluntary Disclosure Initiative (OVDI). By early 2012, the IRS claimed it had collected $4.4 billion under both programs with the number of taxpayers coming forward peaking in 2011 at 18,000.

Since that time, the numbers of taxpayers coming forward has declined, falling to only 600 disclosures in 2017. In contrast, a record high 1,163,229 FBARs were filed in 2015, up more than 8% from the prior year, as more taxpayers complied with annual requirements to disclose. From 2010 to 2015, FBAR filings grew, on average, by 17% per year.





 

Many American taxpayers and business owners use accountants or CPAs to prepare their taxes. Their involvement in the tax process may be as little as signing the return and cutting a check, without ever really considering their accountant's advice. But a new federal court case says taking a laissez faire approach to tax reporting could cut you off from "reasonable cause" defenses to FBAR penalties.

FBAR Reporting Requirements Apply to All Foreign Financial Accounts, Even Canada

The United States Bank Secrecy Act represents the IRS's attempt to track foreign financial assets and capture taxes owed by U.S. taxpayers on income and assets held overseas. To do that, it requires U.S. taxpayers to report each foreign financial account they have a financial interest in or authority over for each year in which the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year.

These FBAR reporting requirements apply to all U.S. taxpayers, including citizens and immigrants with legal status. They apply no matter where the person maintains a primary residence, or where the foreign financial accounts are located. It even applies to our closest neighbors, Canada and Mexico.

The FBAR reporting requirement is separate from the federal income tax return filing process. However, Schedule B, Part III, to Form 1040, requires taxpayers to disclose any interest or dividend interest above a relatively low threshold amount (currently $1,500) on any "foreign account" they control. Part III contains a questionnaire which asks (in the 2006 version) for a "Yes" or "No" answer to the following question:

At any time during [the tax year], did you have a financial interest in or signature authority or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? See instructions for exceptions [e.g., $10,000 aggregate threshold] and filing requirements for Form TD F 90-22.

Ironically, this language — buried at the bottom of Schedule B — is perhaps the only way the IRS puts the average taxpayer on notice that the FBAR filing requirement even exists. As a result, whether the "Yes" or "No" box is checked on Part III of Schedule B constitutes a crucial piece of evidence the IRS uses to determine whether a failure to filed PBAR reports will be ruled "willful or "non-willful."

Can Reliance on Your Accountant to Complete Schedule B Correctly Save You from FBAR Penalties ?

Larry and Linda Jarnagin were U.S. taxpayers. Larry had dual U.S.-Canada citizenship since 1989. Linda had Canadian residency status. The couple owned a cattle ranch in British Columbia, and corporate real estate, apartment complexes and a nightclub in the American southwest. They spent much of each year north of the border. Regular readers of this blog may recall that the Jarnagins had gone through a series of accountants over the years. But starting in 2006, they failed to file FBARs disclosing their bank account at the Canadian Imperial Bank of Commerce (which at one time held over $4 million). When the IRS imposed FBAR penalties on the couple, they objected, saying they had relied on their accountants to properly repair their tax returns and related documents.

The Bank Secrecy Act allows the IRS to impose penalties of up to $10,000 per taxpayer, per year for failing to file FBARs. The IRS proposed total penalties of $100,000, (2 taxpayers over 5 years). After further negotiations, that amount was reduced to $80,000. But the Jarnagins objected, and, after paying the penalty, filed a lawsuit in the U.S. Court of Federal Claims to get their money back, claiming wrongful assessment and collection of penalties. They said their failure to file was "due to reasonable cause" because they hired a competent CPA and relied on his preparation of their tax returns.

But the Court disagreed. While the Bank Secrecy Act does excuse FBAR violations with "reasonable cause", the court said that a taxpayer must demonstrate that he or she exercised "ordinary business care and prudence" and still failed to file. This is a case-by-case determination, based on the facts and circumstances in the case, including the experience, knowledge, and education of the taxpayers, and the steps they took to determine their proper tax liability.

Relying on an accountant's advice can sometimes meet that standard. But simply hiring a CPA does not excuse the taxpayers from their individual duties to exercise ordinary business care and prudence. They must take an active role in the preparation of their tax returns and FBARs.

What the Jarnagins Did Wrong

The problem wasn't with the accountants used by Larry and Linda Jarnagin. The court assumed that each tax preparer was competent to do their job. But the Jarnagins didn't take the necessary steps to receive their most recent accountant's advice, or review the documents he prepared.

The Jarnagins testified that neither of them had actually read their tax returns before signing them. Nor did they take much time to consult with their tax preparer or receive his advice. Like many taxpayers, they provided the requested information, and then came back asking where to sign, and how much they owed.

But the Jarnagins never explicitly told their accountant about the Canadian account. He prepared their tax returns by stating on Schedule B that they had no foreign financial accounts. Because the couple didn't read the return carefully, they never noticed this misstatement, or asked their accountant about the need to disclose the account. In the court's view, they didn't receive accountant's advice on the issue. Exercising ordinary business care and prudence, the court said, would require the couple to read carefully and question their accountant about the omission, raising the issue of FBAR reporting requirements.

U.S. taxpayers are entitled to rely on their accountant's advice to avoid FBAR penalties. But to qualify for that defense they must do their part to ensure the CPA has the information he or she needs to give the right advice. Taxpayers are advised to regularly discuss all of their financial circumstances with their tax preparers to make sure they file the proper tax returns and avoid FBAR penalties.

 

IRS AFter YOu?

IRS OFfshore Voluntary Disclosure Program Reopens  


Today, the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes.  Additionally, the IRS revealed the collection of more than $4.4 billion so far from the two previous international programs. The Offshore Voluntary Disclosure Program (OVDP) was reopened following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will remain open indefinitely until otherwise announced. Lance Wallach and his associates have received thousands of phone calls from concerned clients with questions about the prior programs. Some of Lance’s associates are still very busy helping people with the last program. Not a single person has been audited and most are pleased with the results and are now able to sleep easily without worrying about the IRS.  According to Lance, it requires years of experience to obtain a good result from the program.

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