FBAR Audit Trigger - What if the IRS Catches You Being Dishonest? (Golding & Golding)

FBAR Audit Trigger – What if the IRS Catches You Being Dishonest? (Golding & Golding)

FBAR Audit – Case Study Example | IRS FBAR Audit Trigger

FBAR Audit Triggers are very common, and the number of people getting caught being dishonest by the IRS is on the rise.

FBAR Penalties Can Be Serious

Recently, the IRS has begun seriously cracking down on individuals they catch who knowingly failed to submit required foreign or offshore disclosures and/or or filed False or misleading FBARs, Form 8938, 5471, 8865 etc.

The best way to prevent offshore penalties is to enter into one of the approved IRS Offshore Voluntary Disclosure Programs before the IRS finds you, audits you, and penalizes you.

We will provide a real-life case example of what can happen when you get caught in the IRS cross-hairs.

Be Careful What You Read!

There’s a lot of mis-information on the world wide web. There are numerous rogue individuals who tell people that they have no business filing these forms, and that the government should not have the right to enforce penalties.

They might preface their tirades on the fact that because you reside outside of the United States (possibly because you are an accidental American) the chances of getting caught are lower. While that may be true, what happens when you get caught…will these people also be footing the bill for your IRS penalties?

Nevertheless, if the IRS finds you and determines you were willful, your life may be turned upside down. You will experience excessive fines and penalties, the IRS may levy or seize your assets (domestic or abroad), and/or you may lose the right to travel if your passport is revoked.

The following is a summary of one situation we dealt with recently in which a person went down this road, was caught,  and is now facing serious consequences.

FBAR Audit Trigger Example – Michael From India

Michael is originally from India. He has numerous accounts in India and was aware of the fact that he was supposed to file the necessary forms. He first came to the United States in 2008 on an H-1B visa.

In early 2009, he was at a dinner party with friends from India, and learned that U.S. individuals (even those on still on Visa and who meet the Substantial Presence Test) are required to file taxes just as any US person would.

Thus, if Michael had any foreign accounts (which he did) he was required to report the information on an annual FBAR, as well as report the income.

Myth 1: Offshore Reporting is A New Phenomenon

While FATCA may not have come into existence until 2010, with enforcement in 2014, there have been laws on the books requiring the disclosure of foreign accounts for many years. In fact, FBAR reporting dates back to the 1970s.

Therefore, just because your CPA or Accountant may have just learned about FATCA, you still had a reporting requirement under many other different US laws. In other words, just because FATCA is new, does not make offshore reporting new as well.

Michael’s Tax Professional Knows Less Than Michael

When Michael went to see his tax preparer for the first time, the taxpayer was relatively new. When the tax preparer asked Michael about his income, he never made any reference to foreign accounts, and Michael never volunteered the information to him.

Myth 2 – Your CPA is in IRS Trouble, Not You

In this particular situation, Michael was aware that he had a reporting requirement. The mere fact that his tax preparer did not ask him about foreign accounts does not absolve Michael from liability. In fact, it makes it worse because it clearly shows that Michael was willful, and knowingly did not disclose his foreign accounts or report the income.

Michael’s CPA Learns About Foreign Account Reporting

By 2017 and with the new forms required under FATCA, it would be nearly impossible for tax preparers to not have some knowledge (or at least be aware) of foreign account reporting. In fact, the IRS has made offshore enforcement a key priority, and the exceedingly high penalties are reflective of the IRS’ goal of catching and penalizing individuals.

When it’s time for next year’s tax returns, Michael’s CPA sends Michael a questionnaire asking him to complete all necessary portions. In addition, it asks Michael he had any foreign accounts. Michael does not complete the questionnaire, although he did confirm to the CPA that he received it.

Since Michael did not return the questionnaire (which is not uncommon for clients in general), the CPA presumed that nothing had changed, and continued reporting Michael’s US income based on the information Michael provided to him.

Myth 3 – Michael did not Actually “Lie” to the CPA

This is not true. Aside from making intentional misrepresentations to a tax professional there is the inverse, which is knowingly omitting key information from a tax professionalIn other words, because Michael was aware that he had foreign accounts that he should have been reporting, but he never reported them – he is knowingly making an intentional misrepresentation to the tax preparer by proactively omitting the information (aka Willful Omission)

As such, the tax preparer is under false pretenses that Michael does not have any foreign accounts or foreign income, which is why he did not report it on the return.

Michael is Audited/Under IRS Examination

Michael returns home from a long day only to find a certified letter from the IRS. He opens it to learn that the Internal Revenue Service wants to Audit him.

As of now, the Audit has nothing to do with foreign accounts. Rather, Michael (who is a software engineer) also started a side consulting business, and tried to claim some unreimbursed expenses from his W-2 job through his consulting business. This is a typical red flag, and something the IRS frowns upon.

By embellishing his expenses, Michael was hoping to take more deductions through his consulting business than would not otherwise be available as a W-2 employee, which has the net effect of reducing his tax liability.

Michael Receives an IDR for ALL Income and Accounts

About a week prior to start of the examination, Michael’s CPA (who agree to represent him in the audit) receives an IDR – Information Document Request. The request is about five pages, and asks questions including (a now standard question) whether Michael has any foreign bank accounts or other foreign money or income that he did not report.

When Michael CPA goes to confirm with Michael, Michael relents and explains to his CPA that he does have foreign accounts and income. Michael’s CPA is understandably upset, and refuses to represent Michael at the audit. Moreover, now that the CPA will not represent Michael, Michael has to find new representation as well as worry about whether the IRS will ask Michael CPA about Michael’s file.


We understand individuals make decisions about tax preparation/disclosure in-part based on the fees charged by the tax professional. And, the fees charged by a non-attorney are typically less expensive than an attorney. But that comes at a cost, and with a risk.

The risk being that the IRS has every right to ask the CPA for any documents or other information provided by Michael to the CPA, or by the CPA to Michael.  This is a major catastrophe, because now the IRS will learn that the CPA sent Michael a questionnaire that specifically asked whether Michael had foreign accounts, and Michael received it, but did not complete it. This could lead to Michael being held to be willful

On the flip-side, the IRS agent will learn that Michael received this questionnaire but did not return it to the CPA and still signed the return.

Serious Penalties at Stake

The IRS can issue a slew of potential different penalties against Michael, including:


A penalty for failing to file FBARs. United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. 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.

Form 8938

Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. 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.

Form 3520

A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048. This return also reports the receipt of gifts from foreign entities under IRC § 6039F. 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.

Form 3520-A

A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b). 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.

Form 5471

A penalty for failing to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under IRC §§ 6035, 6038 and 6046. 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.

Form 5472

A penalty for failing to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by IRC §§ 6038A and 6038C. 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.

Form 926

A penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information under IRC § 6038B. 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.

Form 8865

A penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under IRC §§ 6038, 6038B, and 6046A. 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.

Underpayment & Fraud Penalties

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.

Even Criminal Charges are Possible…

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 Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs – BEFORE you are audited.

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:

  • FBAR
  • PFIC
  • CFC
  • International Cryptocurrency
  • J5
  • Increased Schedule B Enforcement (Paul Manafort)
  • Foreign Gifts
  • Foreign Inheritance
  • Foreign Business 
  • Foreign Trusts
  • OVDP
  • IRM
  • SDOP
  • SFOP

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

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.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.

International Tax Lawyers - Golding & Golding, A PLC

International Tax Lawyers - Golding & Golding, A PLC

Golding & Golding: Our International Tax Lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70 different countries. Managing Partner, Sean M. Golding, JD, LL.M., EA and his team have represented thousands of clients in all aspects of IRS offshore disclosure and compliance during his 20-year career as an Attorney. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo and various Law Journals nationwide.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
International Tax Lawyers - Golding & Golding, A PLC