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What Can Happen If You Fail To Disclose Offshore Accounts



Venar Ayar On FBAR

A failure to file FBARs and Form 8938 can result in numerous civil tax penalties. Criminal penalties are also a possibility, which could result in jail time.

FBAR Civil Penalties

The FBAR civil penalties have two tiers, depending on whether your conduct was willful or non-willful:

  • Willful penalties can result in a penalty of $100,000 or 50% of the aggregate foreign account balance
  • Non-willful penalties can result in a penalty of up to $10,000 per violation

These penalties can be assessed for each account and for each year a FBAR should have been filed, but wasn’t.  So a taxpayer with 5 foreign accounts and 5 years of unfiled FBARs could have 25 FBAR violations.  In practice, examiners may recommend only one penalty per year and may even  recommend a single penalty for multiple years of violations.

FBAR Criminal Penalties

Criminal FBAR penalties are even more severe.  The criminal penalty for a willful failure-to-file an FBAR is up to $250,000 in fines and/or 5 years in prison.

If you willfully failed to file an FBAR while violating another U.S. law or as a pattern of illegal activity involving more than $100,000 in a 12 month period, you could face up to $500,000 in fines and/or up to ten years in jail.

Taxpayers who are concerned about criminal FBAR penalties should learn more about the new Offshore Disclosure Program.

Penalties For Failing To File Form 8938

If you failed to file your FBARs, you may have also failed to file Form 8938.  The reporting requirements are slightly different, so it’s possible you weren’t required to file Form 8938 even if you had an FBAR filing requirement for your foreign bank accounts.

The penalty for failing to file Form 8938 starts at $10,000.  If the IRS notifies you of your non-compliance and you still don’t file this form, you can be charged an additional $10,000 for each 30-day period, up to a maximum of $60,000.

You could also face other penalties if you failed to report foreign income and pay taxes on it.  Undisclosed foreign accounts expose you to the risk of severe civil tax penalties and possibly criminal penalties.  Contact a tax attorney to discuss the best risk management strategy for your foreign accounts.

Executive Summary:
  • Failure to file FBARs and Form 8938 can result in civil and/or criminal penalties
  • FBAR civil penalties have two tiers, depending on whether conduct was willful or non-willful
    • Willful penalties can amount to $100,000 or 50% of the aggregate foreign balance
    • Non-willful penalties can result in a penalty of $10,000 per violation
  • Criminal FBAR penalties are even more severe
    • Penalty for willful violations is up to $250,000 in fines and/or 5 years in prison
    • Willfully neglecting to file an FBAR while violating another U.S. law or pattern of illegal activity involving more than $100,000 in a 12-month period could result in up to $500,000 in fines and/or up to ten years in jail
    • The Offshore Disclosure Program could help those taxpayers involved in criminal FBAR penalties
  • Failure to file Form 8938 results in penalties starting at $10,000
  • Contact an attorney if you need to get in compliance with foreign account taxes

Have a question? Contact Venar Ayar.

 

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Venar Ayar

5 thoughts on “What Can Happen If You Fail To Disclose Offshore Accounts

  1. Avatar Keith REDMOND says:

    This is not thorough information and along the lines of scaremongering. I work with many American overseas who are not in the US tax system and will never be in the US tax system as it is more problematic if they are in the system. As a result they have never and will never file an FBAR on their local bank accounts. Additionally, Accidental Americans are not to enter the US tax system as a general rule hence are not to complete FBARs.

    The reality on the ground is that FBAR penalties cannot be collected on those who do not have assets or links to the US. Also, local countries’ tax authorities will not do the bidding of the IRS or the Financial Crimes Enforcement Network on citizens of the country. They will not do it. Again, the reality on the ground.

    It is best to take a holistic approach in assessing one’s situation as an American overseas and Accidental American. One should not rely solely on those in the US tax compliance industry when taking a decision.

    Keith REDMOND
    American Overseas / Accidental American Global Advocate

    • Avatar Kathy says:

      Based on the heading of the article: “What can happen if you fail to disclose OFFSHORE accounts”, I presume Mr. Ayar is speaking to US citizens who live in the USA and have offshore accounts, in which case he is not scaremongering, but rather informing US residents of their tax and filing requirements.

      No where does Mr Ayar (unless I missed it) mention that US citizens living outside USA are subject to the same requirements, such that a non-resident US citizen who is ignorant of USA’s counter-intuitive, byzantine ‘citizenship based’ taxation and reporting, shouldn’t get scared reading this.

      Would you prefer Mr Ayar had written that FBAR and form 8938 apply to all US citizens no matter where they live in the world, or should he just not write about the implications of not reporting OFFSHORE accounts period?

  2. Avatar Bjorn Slijpers says:

    I’m quite certain that if a non-resident US citizen who had not been filing US tax returns or FBARs were to read this and contact Mr. Ayar and ask if these penalties applied to him or her as well, Mr. Ayar’s answer would be “Yes, absolutely, and for a small fee I’ll help you file everything that needs to be filed. Good thing you found me before the IRS found you, the fines would have been enormous.”

    • Avatar Kathy says:

      If a US resident US citizen who had not been filing FBARS for his/her OFFSHORE accounts were to read this and contact Mr. Ayar, presumably Mr. Ayar’s answer would be the same, end result assuming Mr. Ayar was contracted to do the job, being both parties would likely be satisfied. Can one deduce from this article that Mr. Ayar is specifically out looking to scare non-resident US citizens? This blog is about more than just US citizens living outside USA, is it not?

      • Avatar Kathy says:

        Although not articulated well in the above comment, nor in my reply to Mr. Redmond earlier, what I am trying to get at is that the US expat and accidental community is not well served by promoting the idea that all US tax lawyers are bad guys preying on non-compliant long-term expats and accidentals.

        Lawyers can’t specifically recommend that a non-resident US person ignore US tax and reporting laws, although they SHOULD be able to give a realistic assessment of the current risks of not doing so, such that a client can make an informed decision rather than a fear-based one.

        Like the rest of us, tax lawyers probably don’t like it much when people assume the worst about them simply based on their profession. If we want their support advocating against unjust US tax and reporting laws as they affect US persons living outside USA, it would be helpful to not presume their motive when stating legal facts is to scare US expats and accidentals into becoming tax compliant.

        This article in and of itself is not the scaremongering piece that Mr. Redmond claims it is.

        Mr. Ayar, should you be reading the comments here, I really hope you are not one of the bad guys! Please be aware if you are not already, that most long-term, permanent expats and accidentals are NOT US tax and reporting compliant, and that it may not be in their best interests to change that fact.

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