FBAR Penalties – 2019 IRS Guide to Foreign Bank Account Penalties
FBAR Penalties – 2019 IRS Guide to Foreign Bank Account Penalties: U.S. Persons with Foreign Accounts may have an FBAR (FinCEN 114) filing requirement whether they live in the U.S. or abroad. If a Taxpayer fails to file an FBAR, the IRS penalize may issue very extensive penalties against the taxpayer.
Even a civil FBAR penalty can reach $10,000 per account, per year — for non-willful violations.
If the IRS believes your foreign account violation was willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation (per year).
Civil and Criminal FBAR Penalties are Tough
And, because the U.S. Government has made Taxpayer compliance with Foreign Bank Account Reporting a key enforcement priority — the IRS and DOJ will continue to pursue civil and criminal penalties for FBAR non-compliance.
There are four (4) Main elements to the acronym FBAR:
- Foreign (Accounts which are not considered U.S. accounts)
- Bank (Includes various different foreign financial institutions)
- Account (Includes various different types of accounts)
- Reporting (Refers to timely and accurate disclosure)
Not everyone gets hit with FBAR Penalties.
Some U.S. Taxpayers with Foreign Bank Accounts and other Foreign Accounts may be subject to FBAR Penalties for failing to timely and/or accurately reporting their foreign bank accounts to the IRS and FinCEN.
Even though the FBAR is filed with FinCEN, the Internal Revenue Service (IRS) — is the agency tasked with assessing and issuing FBAR Penalties. The IRS has a broad range of authority to issue penalties for FBAR inaccuracy, late filing, and non-filing.
FBAR Penalty Ranges
The penalties can range from a non-willful penalty waiver, all the way up to a 50% willful penalty or $100,000 — whichever is greater. (for each year, up to 100% value of the account).
With that said, there are legitimate Voluntary Disclosure/IRS Tax Amnesty programs you can use to reduce, limit, avoid, and/or waive FBAR Penalties, which we will summarize below:
FBAR Penalty Summary
While we have authored several articles and blog postings on issues involving FBAR penalties, FBAR Filings, and FBAR Frequently Asked Questions (FAQ), we feel that by providing you a Summary Review Guide to FBAR Penalties in general — it may assist you better answer the following questions:
- What is an FBAR?
- What is the purpose of and FBAR?
- What are FBAR penalties?
- Which FBAR penalties will I be subject to?
- Most importantly — How can I avoid, limit or reduce FBAR Penalties?
An FBAR is a Report of Foreign Bank and financial Form aka FinCEN 114. Unlike FATCA (Foreign Account Tax Compliance Act), which is a relatively new law, the FBAR rules and regulations has been around since the 1970s. It was only recently, with the development (2010) and enforcement (2014) of FATCA that FBAR filing has become such a big deal. While the FBAR was initially developed and enforced through FINCEN, the IRS has the power to enforce FBAR penalties against individuals and businesses.
Filing an FBAR
Once you understand the purpose of an FBAR, you will realize that it is not a difficult form to prepare and file. While the 5471 form is lengthy, and the 8621 Excess Distribution calculation is hard, the FBAR is more of an annoyance and invasion of financial privacy than it is a “hard” form to prepare.
Essentially, The FBAR must be filed annually, by any individual, entity, or trust, who has ownership, joint ownership or signature authority over either one account (or several) accounts, investments, life insurance policies — when the annual aggregate total value of all the accounts combined exceed $10,000 on any day of the year.
Resources: 10 Steps to Filing an FBAR
What Are FBAR Penalties?
When a person fails to properly file an annual FBAR statement, and the IRS discovers or uncovers the non-filing, the U.S. Government has the right to penalize the individual for failing to properly file the FBAR.
The law is found in the Internal Revenue Code (aka Tax code) Title 31 USC 5321. This is the code section that authorizes the U.S. government to enforce FBAR penalties against any individual that fails to properly comply with the filing an annual FBAR. As crazy as it sounds, the penalties for your failure to properly file this form are borderline obscene.
Non-Willful FBAR Penalties
The IRS has the authority to penalize you upwards of $10,000 per violation, per account for violations that were non-willful. In other words, if you didn’t even know you were supposed to file the form and report your annual maximum balance on an FBAR statement, the IRS can still penalize you upwards of $10,000 per account, per year.
Sounds absurd, right?
Take this Example: David is a Legal Permanent Resident (Green Card recipient) who relocated to the United States for work when he was 42 years old. David was transferred by his company to the United States initially on an L-1 visa due to his proficiency in science and management. David earned several million dollars during the first 20 years of his career, which he staggered over seven different accounts. These accounts earn about $50,000 a year in passive income.
Under the current state of the law, David could be penalized upwards of $70,000 per year for the six years of unreported FBARs – that is a whopping $420,000 penalty solely because he was unaware of the rule. He will also have to pay taxes, fines and penalties on the unreported income — along with additional fines for unreported FATCA form 8938.
*The reason it is six (6) years instead of three (3) years is due to a nuance in the law statute of limitations which states that when a person has more than $5000 of unreported foreign income, the statute of limitations is expanded from three (3) years to six (6) years.
**The FBAR is only one of several forms David did not file which can lead to additional penalties, including FATCA 3520, 3520-A, 5471, 8621, and FATCA Form 8938.
Willful FBAR Penalties
If the IRS reserves the power to penalize you $10,000 per violation, per account, per year for a non-willful violation – would you like to take a guess at what the penalty would be if they think you were fraudulent?
Answer: The penalty can reach $100,000 or 50% of the account value – whichever is greater.
Therefore, in a multiyear audit, you could easily be penalized 100% value of the account balances. But, at least you can take some solace in the fact that the IRS has reduced the maximum penalty from 300% down to 100%. In other words, using the six-year statute of limitations explained above, in prior years, the IRS could penalize you 300% value (50% per year, for a total of six years). At least now, the penalty is limited to everything you have…and nothing more.
What is the Legal Standard for Willful and Non-Willful?
Despite the fact that the IRS can levy obscene-level penalties against you, it is also good to know that the IRS has not established a set, bright-line rule (clearly defined test) that you can use to determine whether you are willful or non-willful.
There are not as many cases as you would think that have referenced Willful and Non-Willful with respect to FBARs, but there are some guidelines to keep in mind:
Willful does NOT mean Intent or Knowledge
In other words, in order for the IRS to prove willfulness, the IRS does not need to show that you knew you were required to file the FBAR. That would make it too difficult for the IRS – therefore, the IRS has essentially lowered the threshold for themselves to prove Willfulness. This begs the question — what else qualifies as Willful?
Willfulness Can Mean Willful Blindness
What does Willful Blindness even mean? It means that if you knew that you should have known you were required to file an FBAR, then you could be held to a willful standard.
Here is an example of Willful Blindness:
* Let’s say you were minding your own business and an individual walked up to you and told you they will give you $1 million if you drove their vehicle past a known DEA drug point. Without any question as to why they are offering to pay you this much money to essentially drive a car, you accept the offer and drive the vehicle up-to the checkpoint. Unfortunately, you are unlucky and the car is checked, and the cops discover 200 pounds of uncut cocaine was in the car. You could not argue that you did not know there were drugs in the car (no knowledge), because who pays another person $1,000,000 to drive their car past a drug checkpoint? In other words, you should’ve known there was something amidst… and by not asking, you are willfully blind.
Unlike willful blindness, reckless disregard appears to be an even lower standard of willfulness. At least with willful blindness, you should’ve known to ask, but you knowingly didn’t ask…because you didn’t want to know. With reckless disregard, according to the IRS, while you may have believed you didn’t have a filing requirement, your belief was so “ridiculous” that the IRS would never believe you are so stupid. Talk about a walking contradiction…
In a recent California District Court decision (Which could still go up on appeal — U.S. vs. Bohanecs) the court relied upon the reckless disregard standard in making its decision – which can be found here. It is important to note that in the Bohanecs, the facts reflected that the Bohanecs were pretty sophisticated…in addition to stupid.
**One very important thing to takeaway from the Bohanecs case, is not just that the threshold to prove willfulness does not require “actual knowledge,” but just as important is that even though willful FBAR penalties are essentially criminal nature, since they are not being enforced in a criminal setting, the government was not required to meet the criminal standard of beyond reasonable doubt.
In other words, if the IRS wants to issue you criminal level penalties in a civil setting, they do not have to reach the level or burden of proof required in a criminal setting — and the standard essentially boils down to someone being…stupid.
Put it this way: With the way the IRS is always increasing enforcement of international tax related matters, it is safe to say that if the IRS believes in any way, shape or form that you knew, should’ve known, intentionally blind-to-the-fact, or were just stupid to the fact that you should have been reporting the FBAR, you are probably in for a dogfight with the IRS — because they will presumably try to enforce willful penalties against you.
Why Are FBAR Penalties So High?
This is a good question, to which there is no real proven substantive answer.
Sure, the IRS will argue that is to reduce financial crimes, minimize offshore monies being diverted to illegal operations such as drugs and terrorism, and eliminate offshore tax havens – but these facts have yet to be proven. While the IRS touts that it has recovered more than $10 billion in the offshore disclosure program, it has not indicated that it has achieved any reduction in the above-referenced illegal activities as a direct result of the heightened penalties. In reality, many of these people were just scared individuals who probably did not meet the threshold for Willful, and either did not want to “Chance it” with the Streamlined Program, or too nervous (understandably so) to Opt-Out.
In reality, the IRS knows that this is a money grab. In other words, the IRS is aware that yes, there are some major players in the offshore tax world who were caught with hundreds of millions of dollars offshore, and will now be forced to pay very stiff penalties in order to avoid Jail – but that is not the majority of people the IRS catches.
The IRS must be aware that the majority of individuals who have “offshore” accounts did not create these accounts for any illegitimate purpose. Rather, the majority of these individuals either worked overseas, were originally from overseas before relocating the United States and/or have family overseas. Thus, it would make perfect sense that these individuals would maintain offshore or foreign accounts.
For these individuals it is a very scary ordeal.
Turning Non-Willful Violations into Willful Violations
When the IRS can simply bootstrap a non-willful violation into a willful violation, just by showing that a person should’ve known they should have been reporting their foreign accounts (or the IRS believes they were too “stupid” not to know) – what protection do individuals really have against the willful penalties? Since the IRS refuses to provide a specific bright-line test for taxpayers to determine if they were willful or not — the IRS is intentionally keeping the U.S. taxpayers in the dark.
While there are some situations in which it will be obvious that the person was reckless or willfully blind, there will be many more scenarios/situations in which the person may not have been willfully blind or reckless – but the IRS disagrees and wants to push forward with willful penalties.
Our conclusion is simple: the penalties are so high, in order to catch the big Whales. And, while many small fish may also get caught in the Offshore Disclosure net, the IRS does not a believe in “Catch and Release.”
Can I be Criminally Prosecuted for FBAR?
The IRS has the absolute right to initiate a criminal investigation by assigning your matter one of the IRS special agents to pursue a full-fledged criminal investigation to determine whether you were willful in your failure to report your foreign accounts on an FBAR.
The reality is, the IRS does not always initiate a criminal prosecutions – in fact the chances of them doing so are relatively low. Out of the millions upon millions of violations each year, coupled by the millions of civil audits the IRS launches each year that may uncover an FBAR non-filing, the IRS only prosecutes anywhere from 3000 to 7000 criminal prosecutions each year.
That is not to say that the IRS does not pursue many more criminal investigations, but less than 10,000 each year will reach the point in which the IRS wants to prosecute an individual and place him or her in prison. Usually because the individual is forced to succumb to a pre-indictment resolution – even when they believe they were non-willful.
Offshore tax evasion enforcement is a major priority for the IRS. Each year, the IRS publishes a dirty dozen tax scam list for individuals to be cautious of, and offshore tax evasion is always in the top three spots on the list.
In fact, the U.S. Government has developed specific programs that are specifically designed to combat offshore tax evasion and tax fraud.
Swiss Bank Program
For example, in 2013 the government created the Swiss bank program, which as provided by the DOJ “The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.
Terrorist Financing and Financial Crimes
As the policy development and outreach office for TFI, the Office of Terrorist Financing and Financial Crimes (TFFC) works across all elements of the national security community – including the law enforcement, regulatory, policy, diplomatic and intelligence communities – and with the private sector and foreign governments to identify and address the threats presented by all forms of illicit finance to the international financial system.
TFFC advances this mission by developing initiatives and strategies to deploy the full range of financial authorities to combat money laundering, terrorist financing, WMD proliferation, and other criminal and illicit activities both at home and abroad. These include not only systemic initiatives to enhance the transparency of the international financial system, but also threat-specific strategies and initiatives to apply and implement targeted financial measures to the full range of national security threats. Primary examples of these roles in advancing this mission is TFFC’s leadership of the U.S. Government delegation to the Financial Action Task Force, which has developed leading global standards for combating money laundering and terrorist financing and its role in specific efforts to counter threats like proliferation, terrorism and the deceptive financial practices of Iran.
Office of Foreign Assets Control (OFAC)
The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
FinCEN (Financial Crimes Enforcement Network)
This statute establishes FinCEN as a bureau within the Treasury Department and describes FinCEN’s duties and powers to include:
- Maintaining a government-wide data access service with a range of financial transactions information
- Analysis and dissemination of information in support of law enforcement investigatory professionals
- Determine emerging trends and methods in money laundering and other financial crimes
- Serve as the Financial Intelligence Unit of the United States
- Carry out other delegated regulatory responsibilities
**Authorities Delegated to FinCEN pursuant to TREASURY ORDER 180-01
This Treasury Order describes FinCEN’s responsibilities to implement, administer, and enforce compliance with the authorities contained in what is commonly known as the “Bank Secrecy Act.”
What Tax Crimes Can I be Convicted of?
As provided by the IRS, Possible criminal charges related to tax matters include tax evasion (IRC § 7201), filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
– A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000.
– A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.
– A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.
– A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
What are the Options to Reduce or Avoid FBAR Penalties?
In order to avoid severe FBAR penalties, the US government has created a program entitled IRS offshore voluntary disclosure.
Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.
Safely Disclose Assets/Accounts to the IRS
We specialize in IRS Disclosure of Foreign/Offshore Assets, Accounts, Income and Investments.
IRS Voluntary Disclosure lawyer can be daunting, overwhelming, and downright confusing.
Unlike other areas of International Tax, you need a law firm that practices exclusively in the area of IRS Offshore Disclosure, and your attorney should be a Board Certified Tax Law Specialist.
We’re here to help you.
What is the Board Certified Tax Law Specialist Credential?
Once an Attorney earns the prestigious Board Certified Tax Law Specialist credential, it proves to the general public that the attorney is dedicated to tax law, and has real tax law practice experience as an Attorney.
Few tax attorneys have passed the tax speciality exam (regarded as one of the most difficult tax exams in the country) — and met the additional education, experience, and recommendation requirements necessary for certification.
Once a person becomes “Board Certified in Tax,” it shows they have met the following requirements:
- Advanced tax education
- Extensive tax law experience
- Attorney & Judge recommendations for certification
In California for example, there are 200,000 active Attorneys, with tens of thousands of Attorneys practicing in some area of tax — and only 350 Tax Attorneys have successfully earned the designation.
Less than 1% of Attorneys nationwide have earned the credential.
Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
IRS Offshore Disclosure is ALL we do.
Our Managing Partner, Sean M. Golding, JD, LLM, EA earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)
Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.
Tax Law Specialty Firms are Best Prepared to Represent You in Specialized Tax Matters
Unless the firm has 50-100 attorneys, with a $25 million operating budget, a successful boutique tax-law firm will almost always have all of the attorneys in the firm devote the firms’s time, energy, and resources to one specific area of tax.
In other words, all the attorneys in the boutique tax firm practice the same, single area of tax law.
Some common niche areas of tax law include:
- Tax Litigation
- Employment Tax
- Sales Tax
- Offshore Voluntary Disclosure
For example, in employment tax, all tax attorneys in the firm handle employment tax related cases. In sales tax, all the tax attorneys in the firm handle sales tax. It may be “Sales Tax” in various different fields and industries — but the firm will limit the niche practice to sales tax.
The same is true for Offshore Voluntary Disclosure. If a firm handles Offshore Voluntary Disclosure, then all tax attorneys at the firm should be handling the same area of tax law.
This area of Offshore Disclosure law is constantly evolving, and becoming infinitely more complicated — including highly complex issues involving:
- International Cryptocurrency
- Increased Schedule B Enforcement (Paul Manafort)
- Foreign Gifts
- Foreign Inheritance
- Foreign Business
- Foreign Trusts
If a small firm has attorneys practicing 5-10 different areas of tax law (and even non-tax law related matters) – it can put your case at a severe disadvantage.
Why? Because it is impossible for these types of “general tax firms” to establish set protocols, policies and procedures sufficient to handle all the complexities and nuances for multiple different types of niche tax law areas.
At our tax specialty firm, we handle matters involving Offshore Voluntary Disclosure, and each case is led by one or more highly experienced attorneys.
This guarantees that your case gets the time and dedication it deserves.
Why Do We Care?
Because each month, like clockwork, we get calls from individuals in an utter state of panic, because the “Expert” or “Specialist” who made themselves out to be knowledgeable, has no real knowledge of Offshore Disclosure.
It turns out, the Attorney has never handled a complex Offshore Disclosure.
Oftentimes, Golding & Golding is called upon to fix these messes. Click Here to learn about some of the representative matters we have handled.
Serious Tax Matters; Serious Tax Consequences
Getting hit with an eggshell audit, reverse-eggshell audit, or IRS Special Investigation involving offshore money is serious business – it’s not like getting a traffic ticket or speeding ticket.
The ramifications of serious tax inquiries by the IRS (especially in the area of Offshore Disclosure and Compliance), can result in serious consequences such as monetary fines, penalties and even jail time.
Golding & Golding – IRS Offshore Disclosure Lawyers
We are the only attorneys worldwide that focuses exclusively in IRS Offshore Disclosure, and each and every case is led and managed by Mr. Golding and his team.
What Type of Attorney Should I Hire?
IRS Voluntary Disclosure is a specialized area of law. An IRS Voluntary Disclosure is a complex undertaking. It requires the coordination of several moving parts, including strategy development, Tax Preparation, Legal Analysis, Negotiation and more.
You should hire a Tax Attorney who has the following credentials:
- ~20 Years of Private Practice experience representing his/her own clients
- Experienced in Criminal and Civil Tax Litigation
- Experienced representing clients in Eggshell and Reverse Eggshell Audits.
- Advanced Tax Degree (LL.M.)
- EA (Enrolled Agent) or CPA (Certified Public Accountant)
- Preferably a Board Certified Tax Law Specialist
We Specialize in Safely Disclosing Foreign Money
We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)
Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
Examples of areas of tax we handle
- Unfiled Tax Returns
- Unreported Income Penalties
- International Tax Investigations (FATCA and more)
- FBAR Investigations
- International Tax Evasion
- Structuring Investigations
- Eggshell and Reverse Eggshell Audits
- Divorce and Offshore Accounts
- Foreign Mutual Funds
- Foreign Life Insurance
- Fixing Quiet Disclosure
- Foreign Real Estate Income
- Foreign Real Estate Sales
- Foreign Earned Income Exclusion
- Subpart F Income
- Foreign Inheritance
- Foreign Pension
- Form 3520
- Form 5471
- Form 8621
- Form 8865
- Form 8938 (FATCA)
Who Decides to Disclose Unreported Money?
What Types of Clients Do we Represent?
We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.
You are not alone, and you are not the only one to find himself or herself in this situation.
Beware of Copycat Law Firms
Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.
*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.
IRS Penalty List
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 5472
The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.
A Penalty for failing to file Form 926
The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
What Should You Do?
Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.
Be Careful of the IRS
With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)