It is not illegal to put your money in overseas bank accounts or to have foreign financial interests. It is, however, against U.S. law to hide it in order to avoid paying income taxes. In the past, the IRS was not very successful in going after all that untaxed wealth. According to a 2012 Forbes online piece, the “super rich” were hiding an astonishing $21 Trillion (with a T!) in foreign accounts.

Enter FATCA

In a previous blog, we highlighted how FATCA widened the net in uncovering all that wealth. FATCA is, among other things, the tool the IRS uses to find out about U.S. account holders and about those who abet anonymity by hiding the identity of their owners.

FBAR Compliance

We previously discussed the importance of filing an FBAR to disclose financial interests in foreign accounts. The relationship between FBAR and FATCA is that the latter makes compliance with the former more enforceable. There are very stiff penalties for failure to fill out the report, and they get downright draconian if the IRS can prove that the failure to file was intentional.

Penalties can exceed the value of the amount not reported

Take the recent case where a jury in Miami found Carl R. Zwerner responsible for civil penalties for willfully failing to file FBARs for tax years 2004-2006. Mr. Zwerner is the latest casualty of the IRS war on offshore accounts. According to a Wall Street Journal piece last July, Zwerner, 87 years old, is a retired importer living in Coral Gables Florida:

“[The IRS] alleges he had an undeclared account … in Switzerland from 2004 through 2007….The account was held in the name of two foundations, structures that are often used to conceal ownership of offshore accounts…Mr. Zwerner allegedly reported the account to the government in October 2008, a few months before the IRS set up [FATCA].”

The account exceeded $1.4 million, and the jury found that for two of the three years, Mr. Zwerner met the “willful” criteria in failing to file an FBAR. He was assessed a whopping 50 percent of the value of the account. That’s over $2.2 million, which far exceeds the amount of the original account.

What the Zwerner cases could mean for the taxpayer with foreign accounts

The ramifications are as stark as the solution is simple: Anyone still having an unreported foreign account needs to consult a tax attorney now. Filing an Offshore Voluntary Disclosure ahead of the IRS FATCA net won’t be painless, because taxes owed could amount to around 27.5 percent of the yearly balance. On the other hand, the alternative penalties, as illustrated by Mr. Zwerner’s case, could be downright onerous.

Worse yet are the possible criminal sanctions

Not only should you be worried about these massive penalties, after the government has financially chewed you up and spit you out, you may be the target of an indictment. With a determination that failing to file an FBAR is willful, the Department of Justice will have a strong case that you also willfully evaded the payment of income taxes relating to your foreign accounts. And for those of you keeping score at home, the DOJ can seek a sentence of up to five years in prison for EACH tax year that a taxpayer evaded the payment of taxes.”

DeBlis Law is not about fear mongering

Sometimes looking at a worst-case scenario is just what the doctor (or your lawyer) prescribes as an antidote to procrastination. It’s not about fear mongering, so much as looking at the facts and recognizing that the days of secret Swiss Bank Accounts are definitely numbered (pun intended).

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