The US government is cracking down on foreign bank accounts. Failure to file an FBAR can lead to hefty monetary penalties and potential imprisonment.

The United States government is cracking down on foreign bank accounts and tax obligations. A recent report by Forbes highlights the issue, noting the IRS, Financial Crimes unit of the Treasury Department and the Justice Department are all taking steps to actively enforce reporting of foreign bank accounts. More specifically, these agencies are checking for an official Report of Foreign Bank and Financial Accounts, or FBAR.

There is little doubt that these agencies are financially motivated. A single misstep in the reporting procedure can lead to hefty monetary penalties and, in some cases, potential imprisonment.

More on the FBAR

Essentially, an FBAR is required for anyone with a financial interest or signature authority over an account located outside of the United States that has a balance of over $10,000. Some examples of qualifying accounts include:

  • Bank accounts
  • Mutual funds
  • Trusts
  • Securities
  • Stocks

Those who do not disclose the presence of these accounts can face serious penalties.

Penalties for failure to disclose foreign accounts

Both civil and criminal penalties can apply if a foreign account is not properly disclosed. Civil penalties are assessed for negligence, non-willful and willful violations. The penalties tied to a failure to file are intentionally harsh, designed to encourage compliance by anyone who holds a qualifying account. Each non-willful violation can come with a $10,000 penalty. However, violations that are found to be willful face much more severe penalties of $100,000 or 50 percent of the amount in the account for every violation, whichever amount is greater.  There are two primary voluntary disclosure vehicles available to US taxpayers including the OVDP and the Streamlined Domestic Offshore Procedures.

Generally, criminal charges may be pursued in cases of “willful” violation. It is important to note that an interesting debate is currently underway around what fits the description of “willful.” A recent article in Forbes delves into this issue, explaining that the IRS has stated that a failure to learn about proper reporting requirements can fulfill this definition. This could provide the IRS with enough to satisfy this requirement and pursue criminal charges. Criminal charges can lead to lengthy prison sentences, varying depending on the details of the charges.

Legal counsel can help

The Financial Crimes Enforcement Network (FinCEN) notes that accounts can potentially avoid penalties if they are properly reported with reasonable cause for the initial failure to file. As a result, those who hold foreign accounts that may fall within FBAR reporting requirements are wise to seek the counsel of an experienced tax law attorney. The tax attorneys at Allen Barron will help guide you through the process, advocating for your rights and helping to better ensure a more favorable outcome.  We invite you to call for a free consultation at 866-631-3470 and learn about the steps required to come into compliance with the IRS, as well as the legal protections available to you that are not available through a CPA, bookkeeper, accountant, tax preparer or other financial advisor.