FBAR Filing | TaxConnections

03 Mar 2023

Residency Status Under A Treaty: Case Could Eventually Affect FBAR “Escape Hatch”

Does residency status under a treaty affect whether a taxpayer must file FBAR forms? An often-used “escape hatch” to avoid FBAR filing may be the subject of future litigation after a judge’s order.

A recent decision from the U.S. District Court for the Southern District of California ruled in part for one side and in part for the other in Aroeste v. United States, a case of Report of Foreign Bank and Financial Accounts (FBAR) filing and penalties and where a request for records might just the first stage in litigation that could impact many FBAR non-filers.

Plaintiffs Alberto and Estella Aroeste sued the U.S. to recoup penalty payments and to discharge still- outstanding penalties for the non-filing of an FBAR for 2012 and 2013. The penalties were assessed after a three-year administrative audit of the Aroestes’ filings for tax years 2011 through 2015. The U.S. counterclaimed against the plaintiffs to recover the balance of unpaid penalties.

The district court partially stayed the case while it awaits a U.S. Supreme Court decision in Bittner v. U.S. That case presents a conflict over statutes under the Bank Secrecy Act whether a “violation” is the failure to file an annual FBAR no matter the number of foreign accounts or whether there is a separate violation for each account improperly reported.

The California district court said a decision in Bittner will control any penalties the plaintiffs owe.

Discovery question

Neither side disputed some details of this case. For example, an IRS audit of both plaintiffs’ tax filings for the 2011 through 2015 resulted in an assessment of some $3 million in back taxes and penalties, most of that from penalties assessed for failure to file information returns. The IRS audit led to the FBAR penalties at issue in this lawsuit, which were assessed only for tax years 2012 and 2013 because the plaintiffs did not disclose their holdings in various foreign bank accounts during those tax years.

The Aroestes seek in discovery the entire administrative record of the IRS during the now-completed audit – more than 7,000 pages. Read More

Written by Alicea Castellanos | Posted in FBAR Filing • Residency Status Under Treaty

02 Mar 2023

Supreme Court Decides For Bittner In Case Of FBAR Penalties

A narrow U.S. Supreme Court decision in Bittner has curtailed federal penalties in a major case involving failure to file FBARs.

The U.S. Supreme Court has ruled 5-4 against a $2.72 million fine on a businessman who didn’t file reports for five years when he was living in Romania.

This case, Bittner v. United States, presented a conflict over statues under the Bank Secrecy Act (BSA). The question is whether a “violation” under the BSA is the failure to file an annual FBAR no matter the number of foreign accounts or a separate violation for each account that isn’t properly reported.

Regulations require filing a single annual FBAR for anyone with an aggregate balance over $10,000 in foreign accounts. The penalty for non-willful violation is up to $10,000.

Bittner maintained that he owed $50,000, or the penalty for each year. The IRS claimed he owed for each account, a total of 272 violations.

Writing for the Court, Justice Neil Gorsuch backed Bittner. “The BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis,” Gorsuch wrote.

Gorsuch also said the government had tried to penalize Bittner without fair warning under the statute that punishments would be handed out on per-account. He called the government’s attempt to assess a massive penalty against Bittner “incongruous” with how it would have treated someone with a single high-balance account.

Alexandru Bittner was born in Romania in 1957, immigrated to the U.S. in 1982 and became a citizen five years later. He returned to Romania in 1990, where he became a successful businessman and investor. He lived there for more than 20 years and was unaware that he was required to file U.S. income tax returns or FBARs. After returning to the U.S. in 2011, he engaged an accountant to prepare and file the returns and FBARs.

The IRS determined that he had failed to timely file FBARs for 2007 through 2011 and sought a maximum penalty: Read More

Written by Alicea Castellanos | Posted in FBAR Filing

02 Mar 2023

FBAR vs Form 8938: A Side-by-Side Comparison

When it comes to reporting foreign financial accounts as a US taxpayer abroad, there are two main forms to consider: FBAR and Form 8938. While they share many similarities, there are key differences between these two forms that can make a big difference in your reporting obligations and potential penalties for non-compliance.

In this blog post, we’ll provide a side-by-side comparison of FBAR and Form 8938 to help you understand the similarities and differences between the two forms, and make an informed decision about which one to use for reporting your foreign accounts. Let’s dive in!

What is the difference between Form 8938 and FBAR?

Form 8938 Vs. FBAR
Who must file? Specified individuals (US citizens, resident aliens, and certain non-resident aliens) and domestic entities that have an interest in specified foreign financial assets and meet the reporting threshold. US persons (US citizens, resident aliens, trusts, and estates) that have an interest in foreign financial accounts and meet the reporting threshold.

Does it include US territories? No, it doesn’t include US territories(Puerto Rico, American Samoa, Guam, The United States Virgin Islands, and The Northern Mariana Islands) Yes, resident aliens of US territories and US territory entities are subject to FBAR reporting.

What’s the reporting threshold?
Reporting thresholds vary by residency and filing status (Refer to the section above that covers FATCA reporting requirements). The aggregate value of all foreign financial accounts exceeds $10,000.

What is reported?
The maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets. The maximum value of financial accounts maintained by a financial institution physically located in a foreign country.

How are maximum account or asset values determined and reported?
Fair market value in US dollars in accord with the Form 8938 instructions for each account and asset reported; convert to US dollars using the end of the taxable year exchange rate and report in US dollars. Use periodic account statements to determine the maximum value in the currency of the account; convert to US dollars using the end of the calendar year exchange rate and report in US dollars.
Read More

Written by Olivier Wagner | Posted in FBAR Filing • FBAR vs Form 8938

11 Jan 2023

Trust And Estate Tax Court Case: Taxpayer Fails To File FBARs, Underreports Income And Is Now Deceased. IRS Rules!

IRS Ruled Just in Pursuing Years of Underpayment and Fraud

Long-term inadequate filing of FBARs just lets the IRS loose to pursue fraud – international lack of cooperation and even death notwithstanding, as a recent case shows.

In Estate of Clemons v. Comm’r of Internal Revenue, the U.S. Tax Court has ruled that software entrepreneur Brett Clemons Sr., a holder of overseas accounts, underpaid his tax for several years and that his underpayments were due to fraud.

An American born in Florida, Clemons built a successful programming career and, in the mid-1980s, had started his own company and was soon working as an independent contractor for Hewlett-Packard U.S. By 2001 he was married with two children and opened an account with Union Bank of Switzerland (UBS).

He hid the account from his wife because he intended to get a divorce. The account had several features that helped Clemons (the account’s sole owner and signatory) hide it, and he paid UBS to hold his correspondence and to destroy any unclaimed mail after three years.

Written by Alicea Castellanos | Posted in FBAR Filing • Trust And Estate Tax Court Case • Underreporting Income

04 Nov 2022

How Will The U.S. Supreme Court Rule On This FBAR Penalty Case?

Supreme Court FBAR Case: ALEXANDRU BITTNER, Petitioner v. UNITED STATES Respondent - No. 21-1195

Here is the audio recording of the November 2, 2022 Bittner FBAR hearing …

https://www.c-span.org/video/?523324-1/bittner-v-united-states-oral-argument

On November 2, 2022 the Supreme Court Of The United States heard the Bittner case. The issue was whether in the context of a non-willful FBAR penalty:

1) The government is restricted to imposing one penalty based on the failure to file one FBAR; or

2) The government is authorized to impose one non-willful penalty for each of the accounts that should have been reported on the single FBAR form.

For example, let’s imagine that a US citizen has ten accounts that are “foreign” and he fails to file an FBAR form. Is the penalty based on the failure to file the form itself (one form means one $10,000 penalty)? Or may the government impose a penalty based on the failure to disclose each of the accounts on the FBAR form (10 times $10,000 = $100,000)?

Written by John Richardson | Posted in FBAR Filing • TaxConnections

30 Sep 2022

What 2022 Has Taught Us About FBAR Willfulness

What 2022 Has Taught Us About FBAR Willfulness

The Bank Secrecy Act requires certain taxpayers to submit timely FBARs to the United States reporting their interests in foreign accounts. If a taxpayer has an FBAR filing requirement and misses it, the taxpayer can be liable for civil penalties of up to 50% of the account balances or $100,000, if the taxpayer is willful. On the other hand, if a taxpayer misses the FBAR filing deadline due to non-willfulness, the civil penalties are limited to $10,000 per violation, subject to reasonable cause.

What is the difference between willfulness and non-willfulness? Good question. Because the concept of willfulness can include recklessness—and the scope of non-willfulness includes negligence and inadvertence—the line between willful and non-willful is not an easy one to define. Accordingly, federal courts have been left to grapple with the distinction.

So far in 2022, federal courts have issued five important cases on willfulness. Each of these is discussed more below.

Written by Matthew Roberts | Posted in FBAR • FBAR Filing

21 Sep 2022

Mr. FBAR’s Civil Penalty – Does 31 USC 5321(a)(5) Authorize The Imposition Of ANY Civil Penalty For Failure To File An FBAR?

This is Post 6 in a series of posts describing the historical, statutory and regulatory evolution of Mr. FBAR*

These posts are organized on the page “The Little Red FBAR Book“.

Mr. FBAR Visits The Supreme Court Of The United States!

All #Americansabroad should read this wonderful article by @AndreasKluth about the unfairness and destructive effects of #FATCA @citizenshiptax @InFBARWeTrust. There is an extensive comment section which should be used to further the advocacy …https://t.co/dWY5vOWraa

— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 26, 2022

But, maybe the issue is whether a civil FBAR penalty can be imposed at all instead of how much of a penalty can be imposed?

Written by John Richardson | Posted in FBAR • FBAR Filing • TaxConnections

20 Sep 2022

Dangers Of FBAR, Accuracy-Related Penalties, And Foreign Assets

Tax Court in Brief | Estate of Clemons v. Comm’r | Dangers of FBAR, Accuracy-Related Penalties, and Foreign Assets

Estate of Clemons v. Comm’r, T.C. Memo. 2022-95| September 16, 2022 | Buch, J. | Dkt. No. 25029-16

Opinion

Short Summary: Brett Clemons (Clemons) was a successful computer programmer and owned various computer programming businesses. In 2001, he opened a Swiss bank “numbered” account. However, he hid the transfer and existence of the foreign account from his then-wife because he intended to divorce her. When opening his foreign account, he acknowledged his U.S. tax liability in opening documents and requested that the Swiss bank account hold his mail. After the bank account was opened, he used it to deposit significant funds and to make investments overseas.

Clemons prepared and filed his own income tax returns. For 2003 through 2007, he did not report all of his earnings from his computer programming business, and he did not report investment gains from his investments overseas. He also did not disclose foreign accounts on Schedule B of his returns, nor did he file FBARs each year.

Written by Jason Freeman | Posted in FBAR Filing

09 Jun 2022

FBAR (FinCEN Form 114, Formerly TD F 90-22.1), Report of Foreign Bank And Financial Accounts

The law requires each “United States person” who has a financial interest in or signature authority over any foreign financial account to file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The form required is FinCEN Form 114.

This is one that should be pretty well known by now. The obligation to file a Report of Foreign Bank and Financial Accounts (FBAR) with the US Treasury was initially imposed by the Bank Secrecy Act in 1970. Here are the Instructions to FinCEN Form 114 (FBAR). You can electronically file Form 114 for free here.

What Is a Financial Interest for the FBAR?

Written by Gary Carter | Posted in FBAR • FBAR Filing

11 Feb 2022

The Evolving Standard Of “Willfulness” In FBAR Cases: Where Are We Now?

The concept of “willfulness” is an important one in the FBAR civil penalty context. Indeed, a taxpayer’s willful failure to file a timely and accurate FBAR may result in significant penalties: the higher of 50-percent of the unreported account balance at the time of the violation or $100,000 (adjusted for inflation). Take this simple example:

Mark is a dual citizen of the United States and Australia. Mark routinely travels to Australia to visit his family. In one year, Mark chooses to live and work in Australia, making $300,000 as an independent contractor. Mark deposits the funds from his work in an Australian bank account.

When tax time comes, Mark files an income tax return reporting the $300,000 of income. However, he fails to file an FBAR reporting the maximum account balance in the foreign account, which was $200,000. If the IRS determines that Mark’s failure to file an FBAR was willful, the IRS may assess a $100,000 willful FBAR penalty against him.

Written by Matthew Roberts | Posted in FBAR Filing • “Willfulness” In FBAR Cases

17 Nov 2021

Beware Of Your FBAR Obligations – United States V. Solomon

Free Attendee Ticket – Freeman Law International Tax Symposium

FBARs are no laughing matter. In recent years, the Internal Revenue Service, as well as other tax agencies around the world, have stepped up their efforts with respect to international civil tax enforcement. In particular, the Internal Revenue Service oversees investigations concerning FBAR compliance and assesses and collects civil penalties for those U.S. persons who fail to report foreign accounts. The penalties are steep—now a $12,921 maximum annual penalty. However, one relevant question is whether those penalties apply per FBAR filing or per account. In a recent decision by the Southern District of Florida, the Court determined that such FBAR penalties should be applied per account.

FBARs, Generally

Written by Zachary Montgomery | Posted in FBAR Filing • FinCEN Form 114

28 Sep 2021

What Documents Do You Need For Filing An FBAR?

Most US expats need to file an FBAR (Foreign Bank Account Report) annually. The FBAR filing obligation is triggered when you have a financial interest in or signature authority over financial foreign assets with a value of $10,000 or more at any point during the year. Learn what documents you need for filing an FBAR and the filing deadlines.

Can I file FBAR myself and what documents do I need to file an FBAR?

Yes, you can prepare and file your own FBAR. In order to do so, you will need the following information:

Name on the account, ITIN (your SSN), and address
Account number of each account
Name and address of the foreign financial institution where the account is held
Type of account (Bank, Securities, Other)
For jointly-owned accounts, you must provide the name, address and ITIN if applicable for all joint owners of the account
Maximum value of the account (you can find it on your bank statement)
Read More