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Some taxpayers may not know about the IRS’s FBAR requirement. It does not apply to all taxpayers, but the consequences of ignoring it could be horrific for those it does concern. FBAR, or the Report of Foreign Bank and Financial Accounts, is a form to report foreign bank accounts. It states that all U.S. taxpayers (whether citizen, resident, or entity) must disclose any foreign bank account or accounts they have that had $10,000 (in the aggregate) at any point in the previous year. This does not mean an average account balance, or a year end balance. It means that if, even for a single day of the previous year, your foreign bank account or accounts had, all together, over $10,000 dollars in it, you have to report it on a special FBAR form to the IRS.
In cases where a taxpayer does not file an FBAR to report their applicable foreign bank accounts, she faces serious consequences. The severity of the consequence is determined by whether the IRS believes the mistake to be willful or non-willful.
- If the IRS determines that you committed a non-willful violation of the FBAR requirement, it means that you did not know about the requirement, that you were negligent in your failure to report it. The consequence of this determination is a penalty of up to $10,000 per foreign bank account for every year you committed the violation.
- If the IRS determines that you committed a willful violation, it means that you did know about the requirement to file an FBAR and still chose not to report your foreign bank accounts. The consequence of this determination can include a penalty of $100,000 or 50% of the account value, whichever is higher. This penalty could potentially be assessed for each unreported account and for each year you failed to report the account on the FBAR.
- A willful violation can lead to incarceration as it is a criminal offense to willfully fail to file an FBAR.
The issue of willfulness is determined by evidence, and the IRS has the burden to prove that the filer was willful in her failure to file the FBAR or report a foreign bank account. The IRS considers many kinds of evidence, which can include bank statements, correspondence with the foreign financial institution where the account was located, your previous tax returns, interviews with your tax return preparer, previous correspondence from the IRS, and your business and education history. Using a tax return preparer or advisor does not sway your case one way or the other, but the IRS will examine all recorded interactions between you and your tax return preparer or advisor. The IRS considers someone who remains willfully ignorant about the requirement to file an FBAR to be willful.
Failure to file an FBAR to report your foreign bank accounts to the IRS is a serious offense, whether it is willful or not. If you have a legal issue relating to the IRS, contact Weisberg Kainen Mark PL today. Our team’s legal knowledge is as comprehensive as their representation is zealous. Don’t wait to ask for help!
Weisberg Kainen Mark, PL
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