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What 2022 Has Taught Us About FBAR Willfulness

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.

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Written by | Posted in FBAR • FBAR Filing

Collins Reminds That Corrective Actions Alone Do Not Always Negate Willful FBAR Penalties

Collins Reminds That Corrective Actions Alone Do Not Always Negate Willful FBAR Penalties

As a general matter, the FBAR is not a difficult tax form to prepare, at least for most taxpayers and their tax professionals.  At its very basics, it merely asks for identifying information regarding the taxpayer and certain basic information regarding foreign accounts held outside the United States.  Thus, one would suspect that the failure to timely file this seemingly innocuous information return should not result in significant penalties.

However, tax professionals know better.  Under Title 31, a taxpayer’s willful failure to file a timely and accurate FBAR can result in penalties of up to 50% of the foreign account balances, a penalty that can be applied over multiple years. And because federal courts and the IRS view certain reckless behavior as constituting “willfulness,” the bar for willful FBAR penalties can be a seemingly low one.

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Written by | Posted in FBAR • FBAR Penalties

Criminal Tax Statutes Of Limitations And Suspensions: 18 U.S.C. § 3292 And The Fifth Circuit’s Decision In Pursley

Criminal Tax Statutes Of Limitations And Suspensions: 18 U.S.C. § 3292 And The Fifth Circuit’s Decision In Pursley

In civil and in criminal cases, the Government must generally act within a certain prescribed time to take action against taxpayers.  In legal parlance, this period of time is known as the “statute of limitations.”  The statute of limitations generally forces the Government to show its hand and file suit more quickly to avoid prejudice to taxpayers, which may occur through stale evidence or faded memories.

The statute of limitations for many criminal tax cases is located in I.R.C. § 6531.  For example, that provision states that the Government must generally bring a criminal action against a taxpayer within 6 years after the commission of the offense.  But there are exceptions to this general rule.  Indeed, the recent Fifth Circuit Court of Appeals decision in U.S. v. Pursley discusses one notable exception potentially applicable to taxpayers with foreign activities and foreign accounts:  18 U.S.C. § 3292.

Relevant Facts.[i]

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Written by | Posted in 18 U.S.C. § 3292 • Tax Statutes Of Limitations

IRS Issues Summons Requiring Couriers And Financial Institutions To Produce Information About U.S. Taxpayers

U.S. Department Of Justice

Audrey Strauss, the United States Attorney for the Southern District of New York, David A. Hubbert, Acting Assistant Attorney General for the Justice Department’s Tax Division, and Charles P. Rettig, Commissioner of the Internal Revenue Service (“IRS”), announced that U.S. District Judge Gregory H. Woods entered an order yesterday authorizing the IRS to issue summonses requiring multiple couriers and financial institutions to produce information about U.S. taxpayers who may have used the services of Panama Offshore Legal Services (“POLS”) and its associates (together, the “POLS Group”) to evade federal income taxes.  Specifically, the IRS summonses seek to trace courier deliveries and electronic fund transfers between the POLS Group and its clients, in order to identify the POLS Group’s U.S. taxpayer clients who have used the POLS Group’s services to create or control foreign assets and entities to avoid compliance with their U.S. tax obligations.

Manhattan U.S. Attorney Audrey Strauss said:  “This action underscores our Office’s commitment to hold accountable those who use offshore service providers to avoid U.S. taxes.  In issuing these John Doe summonses, we continue our joint efforts with the IRS to investigate tax evaders who use foreign financial accounts and sham foreign entities to hide their assets.”

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Written by | Posted in IRS • United States Department Of Justice

IRS Gets Green Light To Seek Information From Third Parties Regarding Panama Offshore Legal Services

IRS Gets Green Light To Seek Information From Third Parties Regarding Panama Offshore Legal Services

On July 29, 2021, the United States Attorney for the Southern District of New York, the Assistant Attorney General for the Department of Justice Tax Division, and the IRS Commissioner all announced that a federal court in New York had entered an order “authorizing the IRS to issue summonses requiring multiple couriers and financial institutions to produce information about U.S. taxpayers who may have used the services of Panama Offshore Legal Services (‘POLS’) and its associates (together, the ‘POLS Group’) to evade federal income taxes.”  A copy of the news release can be found here.  Although the government’s efforts to identify additional foreign assets and accounts is not surprising, the news release does provide another cautionary tale of the government’s power and reach to identify taxpayers who hold foreign accounts and assets overseas without proper reporting and payment of federal taxes.

Background 

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Written by | Posted in FBAR Filing • Panama Offshore Legal Services

Mr. FBAR: Rule Of Law vs. Rule By Law

FBAR LAWS

Introduction: Looking For Mr. FBAR – Outside Looking In Rather Than Inside Looking Out

FBAR cases are newsworthy. For the last decade blogs and legal journals have been populated by some of the most important FBAR questions of the day.

These questions (most of which are unresolved) include:

– What does willfulness mean in the context of the failure to file an FBAR? What if an individual incorrectly answers the FBAR question on Schedule B?

– What accounts are required to be reported? Gambling accounts? Crypto currency accounts? Gift card balances?

– What does “reasonable cause” mean and when can reasonable cause apply?

– and most recently: Can the Government impose a separate penalty on each unreported account or can only one penalty be reported based on the requirement of one FBAR form?

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Written by | Posted in FBAR • Mr. FBAR: Rule Of Law vs. Rule By Law

3 Reasons To Make An Offshore Disclosure

3 Reasons To Make Offshore Disclosure

Disclosing your unreported offshore accounts can give you peace of mind because you no longer have to worry about massive penalties or IRS criminal investigation. There are several reasons to act quickly and take advantage of the current IRS offshore disclosure options.

Key Insights We Will Discuss:
How you can limit your tax penalties by making an offshore disclosure as soon as possible
How the IRS can find out about your foreign bank accounts
Why you should not wait to make an offshore disclosure

An Offshore Disclosure Can Reduce Your Tax Penalties
The penalty for failing to file an FBAR is up to $10,000 per non-willful violation. Willful violations can lead to penalties of up to $100,000 or 50% of your aggregate offshore account balance.
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Written by | Posted in Offshore Disclosures

Coming to America? Welcome To The Land of FBARs

Green Cards And Taxes

Thoughts From A Conversation About Green Cards And Taxes

The purpose of this is to reinforce some very simple points. I find that people always have more trouble remembering what’s simple.

Moving to America

1. Taxation of income from your remaining “non-U.S. assets”
You will be shocked to find that many of your “foreign assets” will be subject to particularly punitive U.S. taxation.

2. Reporting of your “non-U.S. assets”
If you are moving to America, you are moving from another country. You will very likely retain financial assets and bank accounts in that country. From a U.S. perspective, these assets are “foreign” and therefore a “fertile ground” for taxation and penalties.

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Written by | Posted in FBAR • FBAR Penalties • Green Card

Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets

GARY CARTER
What Happens If You Haven’t Filed These Forms?

There are options to file delinquent forms that could be easier and less financially painful than you think. The IRS has been given large weapons by Congress with an array of huge delinquency penalties, but instead of waving them around wildly, causing noncompliant taxpayers to dive for cover, the IRS would rather coax taxpayers into compliance using the carrot approach. We will briefly explain three programs the IRS currently offers to help taxpayers get caught up: 1) streamlined filing procedures, 2) delinquent FBAR submission procedures, and 3) delinquent international information return submission procedures. For additional information, see Options Available for U.S. Taxpayers with Undisclosed Foreign Financial Assets.

Streamlined Filing Compliance Procedures

The IRS created the original streamlined procedure in 2012. This program was offered only to taxpayers living outside the United States who qualified for the foreign earned income exclusion. It was further restricted to taxpayers with unreported income of $1,500 or less.

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Written by | Posted in TaxConnections

IRS Unveils Tax Breaks For Certain Former Citizens; Tax Experts Give Their Verdicts

Helen Burggraf

The U.S. Internal Revenue Service unveiled a set of “new procedures” on Friday that it said would enable “certain” expatriates – a sub-group of “accidental Americans” who have renounced their citizenship, or are considering doing so – to avoid key taxes normally associated with renouncing.

Tax experts said the announcement was highly significant, and would likely be welcomed by many who fit the relatively narrow category of those likely to benefit from it. One suggested the scheme might help the IRS to focus its attention on the “bigger fish” it believes to be lurking in the overseas pond. 

In a statement, the Accidental Americans Association said it welcomed the initiative, but added that it did “not go far enough”. 

The “Relief Procedures for Certain Former Citizens” only applies to individuals who have relinquished their citizenship since March 18, 2010, or have not yet done so, who have less than US$2m in net worth, and who have never filed U.S. tax returns as U.S. citizens or residents, the IRS explained in a statement. 

They also must “owe [only] a limited amount of back taxes to the United States.”

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Written by | Posted in Expatriate

The IRS Large Business And International Division (LB&I) Announces The Approval Of Six Additional Compliance Campaigns

IRS

To date, LB&I has announced a total of 59 campaigns.

The campaigns described below were identified through LB&I data analysis and suggestions from IRS employees. LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources. The new campaigns are:

S Corporations Built in Gains Tax

Practice Area: Pass Through Entities

Lead Executive: Holly Paz, Director of Pass Through Entities

C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within 5 years after the conversion. This tax is assessed to the S corporation. LB&I has found that S corporations are not always paying this tax when they sell the C corporation assets after the conversion. LB&I has developed comprehensive technical content for this campaign that will aid revenue agents as they examine the issue. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions. Treatment streams for this campaign will be issue-based examinations, soft letters, and outreach to practitioners.

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Written by | Posted in IRS Compliance Campaigns • Offshore Disclosures
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