By now most U.S. taxpayers are aware that the enforcement of offshore disclosure laws is taken seriously. The IRS and U.S. government have devoted significant resources towards enforcing these foreign disclosure laws. The U.S. government has signed international governmental agreements with more than 100 nations that allow for the automatic and reciprocal exchange of account and tax data. Along with various other enforcement efforts, this account data allows authorities to identify and prosecute those who fail to satisfy their disclosure duties.
Despite the significant amount of enforcement activity that occurs regarding offshore accounts, people still fail to make required disclosures. This means that individuals often end up facing significant penalties and other serious consequences related to their non-disclosure. As the June 30, 2016 filing deadline for FBAR approaches, it is important to consider the reasons why people fail to file and the penalties they can face.
Why Do People Fail to Comply with FBAR Disclosures?
The reasons behind an individual’s failure to file an FBAR disclosure and complete/submit FinCEN Form 114 range from relatively simple to extraordinarily complex. For some people, FBAR compliance failures arise because they were unaware of the obligation. More specifically, they may not realize that certain foreign accounts, such as signature authority accounts, apply to the $10,000 aggregate filing threshold. In other circumstances, taxpayers may be advised by an offshore asset protection company to avoid disclosing the existence of foreign accounts or trusts. Unfortunately, actions of this type can potentially subject an individual to harsh penalties. For the latter, willful actions to conceal accounts and fail to satisfy one’s obligation to disclose can lead to even harsher penalties and additional tax charges.
How Can a Failure to File FBAR Be Punished?
The failure to file FBAR can be met with harsh punishment for even an accidental or inadvertent failure to comply with the disclosure obligation. An accidental, inadvertent, or mistaken failure to file can be punished with a penalty of up to $10,000. The $10,000 penalty might be assessed for every year where a filing obligation existed and the individual failed to comply. These penalties can sometimes be mitigated or eliminated if the taxpayer can show reasonable cause for the filing failure.
When the noncompliance with FBAR can be linked to willfulness, the penalties become much harsher. In the context of FBAR, a willful failure to file involves an intentional or voluntary neglect of a known legal duty. Since public awareness of FBAR is much more common compared to even five years ago, the odds of facing these more serious penalties for willfulness are greater than ever. If the investigating agent believes that you willfully failed to file FBAR, you can face a penalty the equals the greater of $100,000 or 50% of the aggregate balance of the foreign accounts.
In the case of a willful failure to file FBAR, additional charges can apply, and individuals may face criminal tax charges. This typically occurs when the IRS agent or auditor believes that the failure to file FBAR was part of an effort to conceal assets or income to evade taxes. Additional charges that can stem from a failure to file FBAR include tax evasion and submitting a false or fraudulent income tax return. Remember, since your income tax return is submitted under the penalty of perjury, and Schedule B specifically inquires foreign accounts, additional tax charges can arise from your concealment or nondisclosure.
What Factors Will the IRS Consider When Deciding on an FBAR Penalty?
There is a considerable amount of factors that the IRS will take into account in regard to whether you should face the full extent of FBAR penalties. These include:
- Have you failed to comply with foreign disclosure obligations in the past?
- While you are ultimately responsible for the contents of your tax return and disclosures, relying on the services of a tax professional will be taken into account.
- Was there a tax deficiency stemming from the nondisclosure? If so, what was the extent of the deficiency?
- Are there signs that the account was concealed deliberately?
- Does the taxpayer have the education and background that would likely make the individual aware of a filing obligation?
- What is the level of complexity of the disclosure or underlying tax issue?
The IRS will assess these factors when determining the penalty a taxpayer can face. An experienced tax lawyer can argue these factors to mitigate or eliminate the penalties one might face for noncompliance.
Work with a Strategic and Aggressive Sacramento Tax Attorney
If you are seeking to achieve FBAR compliance or are concerned about past noncompliance, the Sacramento tax lawyers of the NewPoint Law Group, LLP may be able to help. To schedule a confidential legal consultation, call our firm at 800-358-0305 today or contact us online.