For over 40 years, the I.R.S. has required that any "U.S. person," including U.S. citizens, residents, partnerships, corporations, trusts, and estates with a financial or signatory interest in an account in a foreign financial institution file a Foreign Bank and Financial Accounts Report if the account has a balance of at least $10,000 at any given time in a year. The FBAR requirement is intended to provide information that assists government agents in investigating international crimes such as money laundering and terrorism, as well as helping to track unreported income.
Many people with offshore assets fail to file FBAR forms, either through ignorance or the belief that the I.R.S. will not discover the overseas holdings. However, people should be aware that there are severe civil and criminal penalties for not filing an FBAR. With the announcement of the 2011 Offshore Voluntary Disclosure Initiative, the I.R.S. is not only giving taxpayers a chance to come into compliance with U.S. tax requirements but also signaling its intent to crack down on those who are not reporting their taxable property.
Criminal Penalties
Criminal penalties apply to those who willfully fail to file FBARs. If you are caught, you could face up to five years in prison or a $250,000 criminal fine, or both, for each year that you needed to file the FBAR. Those who willfully fail to file FBARs as part of a pattern of criminal conduct violating additional laws and involving more than $100,000 in a 12 month period open themselves up to even greater sanctions: 10 years in jail or up to a $500,000 criminal fine, or both.
Failing to file is one thing; filing falsely is another. Those who willfully file a false FBAR face up to five years in jail, a $10,000 criminal fine, or both.
Civil Penalties
Even if a person's failure to file an FBAR when he or she was supposed to was inadvertent, a person may still face civil penalties. The government can levy a $10,000 fine for each year that the person was supposed to file an FBAR and did not. Additionally, if there is a pattern of negligent activity on the part of the taxpayer, the government may impose an additional penalty up to $50,000.
Willful violations of the FBAR requirement are also subject to civil penalties in addition to the criminal penalties. The civil fines for willful failure to file an FBAR or filing a false FBAR are the greater of $100,000 or 50 percent of the amount in the account at the time of the violation.
How OVDI Can Help
Those who are in arrears with filing FBARs have an opportunity to come forward to the I.R.S. under the 2011 OVDI until August 31, 2011. The benefit of voluntarily coming forward is that the government will generally avoid criminal charges and will only assess a penalty equal to 25 percent of all the taxpayers' offshore assets, in addition to requiring that the taxpayer pay all back taxes and interest.
Some believe that so-called "quiet disclosure," wherein they file past-due FBARs and amended tax returns along with paying the appropriate taxes, will help them avoid any penalties at all. However, the I.R.S. has stated that such disclosures will not protect taxpayers from criminal prosecutions and civil fines, should the I.R.S. discover them.
Those with offshore assets who are looking to come into compliance with the I.R.S. have an opportunity to do so under the 2011 OVDI until August 31, 2011. Participation in OVDI can help taxpayers avoid criminal penalties and stiff civil fines. Talk with an experienced tax attorney to discuss your specific case.
