Americans are required to comply with the requirements of Foreign Bank Account Reports. Failing to report a foreign bank account that has a value of $10,000 at any point during the year can result in serious consequences of FBAR violations. The extent of your penalty depends on whether the IRS considers your violation as willful or non-willful.
Willful Violations
A willful FBAR violation is one that was a voluntary and intentional violation of a known legal duty. The determination of whether a violation is willful depends specifically on your knowledge of the reporting requirements for offshore tax shelters and accounts and a voluntary choice not to comply with the law. However, failure to file will not simply be ignored by the IRS if you claim ignorance of the FBAR requirement. Another type of willful under the tax code is willful blindness, which occurs when you make a conscious effort to avoid learning about FBAR requirements.
The Internal Revenue Service is responsible for providing evidence of this criminal tax matter. An IRS criminal tax investigation may be launched to support the allegation of a willful FBAR violation. This IRS criminal investigation may consist of agents reviewing the following types of evidence to use against you:
- Bank statements from your foreign account
- Other bank records
- Prior FBAR documentation for prior year returns
- Emails, letters or other correspondence between you and your tax preparer about FBAR requirements
- Signed tax returns with Schedule B which mentions the FBAR requirement
- Correspondence between you and the IRS regarding FBAR requirements
- Reports by IRS examiners showing previous noncompliance with FBAR requirements
Penalties for FBAR Violations
A willful FBAR violation can be considered criminal tax fraud. The most serious potential consequence is the threat of incarceration. A willful FBAR violation can result in imprisonment up to five years. The civil fine for willful violations is up to $100,000 or 50% of the balance of the account that is in violation of the reporting requirements. However, you can also be assessed an additional fine up to $250,000.
Non-willful violations can only be punished by monetary civil penalties. These fines are set a maximum amount of $10,000 per violation.
Avoiding Penalties by Establishing Reasonable Cause
If your violation is considered non-willful, you may be able to avoid stiff penalties if you can successfully show through your tax attorney that your violation was due to reasonable cause and that you have filed and reported any past-due FBARs. Reasonable cause may exist if you had an honest misunderstanding of fact or law that is reasonable under the circumstances. Your education, experience and knowledge may be assessed to determine reasonable cause. If your taxpayer acted in good faith, this may also be grounds for finding reasonable cause.
Contact a FBAR Attorney for Assistance
If you are facing charges of a tax crime or civil penalty for FBAR violations, an experienced tax lawyer from Robert J. Fedor Esq., LLC. can help. We can analyze the nature of the charges against you and take steps to minimize the potential penalties you face.
