FBAR- 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.

Second, offshore banks have been sending out letters to U.S. based account holders requesting that they attest to compliance with FBAR reporting and closing some accounts for non-compliance. The due diligence  provisions Foreign Account Tax Compliance Act  (FATCA) are now in effect and  offshore banks with U.S. correspondent banking agreements are scouring their records for U.S. account holders. These banks are requesting consent from U.S. account holders to disclose information about the U.S. account holder to the IRS.

Third, The Justice Department has brought actions against several offshore banks, Switzerland, Luxembourg, and Israel to compel disclosure of information about U.S. account holders.

Finally, beginning with 2011, Form 1040 has specific questions on Schedule B about whether the taxpayer filed an FBAR. Yet, in spite of all of the information many U.S. taxpayers, including those who are resident aliens have refused to come forward.  Some of the reasons for not coming forward are fear based, and some based upon risk/reward estimates.  In each case the outcome if caught is so terrible, that it is hard to imagine why anyone would refuse to come forward. 
However, in the following situations it is overwhelmingly likely that you will caught – and as in most things of this nature, the consequences will largely be determined by who gets to whom first:

Example 1:  Taxpayers are resident aliens who claim to have inherited funds in excess of $100,000 somewhat recently.  The funds were kept in an offshore account and not reported for either income tax or FBAR purposes. Here are the potential results.  First, a Report of Foreign Gift or Bequest was due for income tax purposes.  While no estate or gift  tax was due the failure to file Form 3520 when due can result in a civil penalty of between 25% -35% of the amount of the bequest, (for simply not filing). If the taxpayers filed an FBAR and Form 3520 timely there would be no penalties at all and no tax due   Second, the taxpayer's  now face a civil FBAR penalty of the greater of 50% or $100,000 of the highest account balance per year.  If, however, they enter the offshore voluntary disclosure program the maximum combined civil penalty is 27.5% of the highest single year account balance.  While the civil penalty is costly, the "ostrich" approach is likely to be catastrophic.

Example 2: Taxpayer has an offshore corporation which is used to provide inflated or false invoices so that the taxpayer can move money offshore and deduct the payment.  The taxpayer owns the company directly or indirectly (such as through a trust or nominee) but has full control over the bank accounts.  The taxpayer did not File FBAR's or attach a Controlled Foreign Corporation return (Form 5471) to his Form 1040.  In this case the taxpayer faces potential criminal prosecution for both income tax evasion and willful failure to file FBAR's.  The risk of prosecution and the penalties for tax evasion (75% of evaded tax) and FBAR willfulness penalties can be avoided if the taxpayer makes a timely offshore voluntary disclosure. The cost benefit surely tilts in favor of disclosure.

Example 3: Taxpayer is considering applying for an EB-5 Visa (investor Visa).  Before entering the program the taxpayer should obtain a legal opinion on how to properly comply with disclosure requirements for  holdings in financial accounts and other interests.  The failure to properly comply with FBAR and income tax reporting rules can be grounds for revocation of the visa.  Once the EB-5 or any other visa that results in  permanent resident status is issued, the FBAR and other compliance rules and penalties apply.
THE BOTTOM LINE: Bank secrecy is over. The best advice we can give is for you to “come clean” ASAP. WE will be more than pleased to help you. Our fees are reasonable and we work with top tax lawyers to secure the best possible outcome for you.
“The days of bank secrecy are over. The computers are taking to each other and the banks are turning over information to the IRS. The sooner you take steps to resolve your situation, the better the outcome is likely to be” ~ 
NOTE: In addition to the FBAR, you should be careful to file forms 8938 and 3520 / 3520A as appropriate for foreign investments.


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  2. .
    Reporting by U.S. Persons Holding Foreign Financi
    Contact Information
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    IRS Form 8938
    FATCA requires any U.S. person holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return. Reporting applies for assets held in taxable years beginning on or after January 1, 2011. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.
    Under FATCA, U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on a new form attached to their tax return. Penalties apply for failure to comply with this new reporting requirement. Reporting is required for assets held in taxable years beginning on or after January 1

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  3. Question: I have not been filing the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) despite having a filing requirement. Should I file amended income tax returns reporting and paying the tax owed and file FBARs going forward instead of entering into the Offshore Voluntary Initiative Program (OVDI)?

    Answer: The above technique is known as a quiet disclosure. Quiet disclosures are admonished by the IRS. The IRS has a FAQ section for its 2012 OVDI program. In FAQ Number 15 and 16, the IRS explicitly states that it will closely monitor these late filed amended returns to determine whether enforcement action is appropriate. The IRS goes on to state that it may, if criminal tax evasion is evident, refer the matter to the Department of Justice. In March 2013, the US Government Accountability Office (“GAO”), released a report, GAO-13-318, about offshore tax evasion. In the report, the GAO stated that quiet disclosures undermine the incentive to participate in OVDI. The IRS concurred with the GAO’s report and acknowledged that it will utilize methods to effectively detect and pursue taxpayers deciding to execute quiet disclosures.

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  5. FBAR/OVDI LANCE WALLACH
    FBAR Foreign Bank Account Reporting The IRS is assessing huge penalties for undisclosed foreign bank accounts, assets & income. Click for more info FBAR FILING DEADLING HAS BEEN EXTENDED

    Wednesday, April 10, 2013
    IRS FBAR Voluntary Disclosure Initiative, opt out to reduce tax


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    The 2012 OVDI, which is still open, is patterned after the 2011 OVDI, but increases the maximum Report of Foreign Bank and Financial Accounts (FBAR)-related penalty from 25 percent to 27.5 percent of the highest account value at any time between 2003 and 2010. The 2012 OVDI does not have a stated expiration date. In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.
    Under the Bank Secrecy Act, U.S. residents or a person in and doing business in the U.S. must file a report with the government if they have a financial account in a foreign country with a value exceeding $10,000 at any time during the calendar year. Taxpayers comply with this law by reporting the account on their income tax return and by filing Form 90–22.1, the FBAR. Willfully failing to file an FBAR can be subject to both criminal sanctions (i.e., imprisonment) and civil penalties equivalent to the greater of $100,000 or 50 percent of the balance in an unreported foreign account — for each year since 2004 for which an FBAR wasn't filed.
    The 2009 OVDP brought in at least 14,700 U.S. taxpayers (disclosing accounts in more than 60 countries) through the front door of IRS Criminal Investigation and untold thousands through a process of quietly amending returns and filing delinquent FBARs with the government. For eligible taxpayers who applied the OVDP provided the certainty of no criminal prosecution and civil penalty relief — they were required to pay back-taxes from 2003 to 2008, interest and a 20-25 percent penalty on the delinquent taxes. The IRS also imposed a 20 percent FBAR-related penalty equal to the highest aggregate value of the financial account between 2003 and 2008. In limited situations, the FBAR-related penalty could be reduced to five percent of the account value or $10,000 per tax year. If they got a great CPA with experience to help them, the fine was a lot less.
    The 2011 OVDI, brought in an additional 12,000 eligible taxpayers who filed original and amended tax returns and agreed to make payments (or good-faith arrangements to pay) for taxes, interest and accuracy-related penalties. The 2011 OVDI FBAR-related penalty framework required a 25 percent “FBAR-related” penalty equal to the highest value of the financial account between 2003 and 2010. Only one 25 percent offshore penalty is to be applied with respect to voluntary disclosures relating to the same financial account. The penalty may be allocate
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  6. FBAR/OVDI LANCE WALLACH - Help with Common IRS ...
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    Feb 11, 2014 - FBAR/OVDI LANCE WALLACH: FBAR & International Tax Alert Report: The willful failure to file the FBAR report or retain records of your foreign .

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