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FBAR Criminal vs. FBAR Civil – IRS Offshore & Foreign Accounts

FBAR Criminal vs. FBAR Civil – IRS Offshore & Foreign Accounts

FBAR Criminal vs. FBAR Civil - IRS Offshore & Foreign Accounts - Golding & Golding

FBAR Criminal vs. FBAR Civil – IRS Offshore & Foreign Accounts – Golding & Golding

Unfortunately, some attorneys are intentionally manipulating and twisting how the FBAR laws work when presenting information to clients, in order to make the penalties seem worse than they are, in most situations.

Depending on the facts and circumstances of your case, you may be subject to IRS (Internal Revenue Service) fines on your Foreign and Offshore Bank Accounts or Offshore Accounts. These fines may range from a warning letter in, all the way up to a 100% penalty in a multi-year audit.

Recognize FBAR Scare Tactics

You may see these attorneys advertising the following:

  • “Unfiled FBARs are a Criminal Offense, and you will be fined $500,000.”
  • “Unfiled FBARS will get you 5 years in Jail.”

There are half-truths. These attorneys are making it appear that by not filing an FBAR, you’re going straight to jail for five years and fined $500,000.

Reverse FBAR Scare Tactics

On the other end of the spectrum, other attorneys will tell you that even if you were willful in not filing FBARs (and/or other international information returns) for just a year or two, you can still submit to either the streamlined program or reasonable cause – both which require an element of “non-willfulness” – to get into compliance. They do not tell you that if you get caught lying or misrepresenting your “non-willfulness” in a Streamlined or Reasonable Cause submission, you may then end up being criminally prosecuted by the DOJ.

This is a serious problem designed by unethical attorneys. For a case study on how they sell you on FBAR Streamlined when you know you were willful (and other scams to watch out for), please click here: How to Hire an OVDP Tax Lawyer and Avoid OVDP Tax Scams.

Article Summary

This article can be summarized as follows: While Civil FBAR Willful penalties can be extraordinarily high, and the burden of proof is a mere preponderance of the evidence, simply being found liable for civil Willful FBAR Penalties, does not make you guilty of an FBAR crime and/or subjecting you to jail or prison. In order for the government to pursue criminal penalties for willfulness, they have to prove beyond a reasonable doubt in a criminal proceeding.

What is an FBAR (FinCEN 114)?

The FBAR is the Report of Foreign Bank and Financial Account Form. We have written countless articles on matters involving FBAR related issues, but at its core, the FBAR it is a form that is filed electronically each year on the FinCEN department website, by any person who has more than $10,000 in annual aggregate total in foreign accounts.

It does not matter if it is one account or if the money is spread over multiple accounts, and it does not matter if the money belongs to you or somebody else of which you have signature authority.

FBAR Non-Willful

Briefly, if a person was non-willful, then there is no crime. In order to prove a crime you have to prove intent or some form of intent. While even non-willful penalties can be much higher than anyone anticipated for simply negligently failing to report an FBAR – the non-compliance is not criminal.

And, oftentimes there are procedures such as delinquency procedures, reasonable cause, or streamlined procedures, which may reduce or eliminate penalties

Section 31 U.S.C. § 5321 – Civil Willful Penalties

Section 5321 involves civil FBAR penalties, and makes the distinction between willful and negligence/non-willful with respect to the monetary penalties that can be issued for an FBAR Willful violation.

It should be noted that in the civil arena, a person cannot be found guilty and sent to prison. Rather, if the IRS or US government wants to enforce criminal penalties, they would have to pursue criminal procedures, and seek an indictment or criminal complaint – which is a major process.

Civil Willful Violations

In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314

(i)the maximum penalty under subparagraph (B)(i) shall be increased to the greater of;

(I) $100,000, or

(II) 50 percent of the amount determined under subparagraph (D), and

(ii) subparagraph (B)(ii) shall not apply.

(D) Amount.—The amount determined under this subparagraph is—

– in the case of a violation involving a transaction, the amount of the transaction, or

– in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation

Section 31 U.S.C. § 5322 – Criminal Willful Penalties

The criminal penalties for willfully not filing the FBAR are intense, and are as follows:

(a) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315 or 5324 of this title or a regulation prescribed under section 5315 or 5324), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, shall be fined not more than $250,000, or imprisoned for not more than five years, or both.

(b) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315 or 5324 of this title or a regulation prescribed under section 5315 or 5324), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, shall be fined not more than $500,000, imprisoned for not more than 10 years, or both.

(c) For a violation of section 5318(a)(2) of this title or a regulation prescribed under section 5318(a)(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.

(d) A financial institution or agency that violates any provision of subsection (i) or (j) of section 5318, or any special measures imposed under section 5318A, or any regulation prescribed under subsection (i) or (j) of section 5318 or section 5318A, shall be fined in an amount equal to not less than 2 times the amount of the transaction, but not more than $1,000,000.

FBAR Criminal Willful Penalties – Beyond a Reasonable Doubt

If a person is being charged with a crime, and their freedom is at stake, the burden to provide guilt increases, so that the US government must show that beyond a reasonable doubt they have willfully violated the law, and they must be charged in a criminal procedure.

FBAR Civil Wilfulness – Prepronderance of the Evidence

On the other end of the spectrum, in order for the IRS to issue willful civil FBAR penalties that are civil in nature (aka, Monetary penalties but no jail or prison) – despite the sheer amount of the penalty – the US government only has to show preponderance of the evidence.

While there is no specific quantification of each standard of proof, preponderance of the evidence is the lowest standard and is typically quantified at more than 50%, as opposed to beyond a reasonable doubt that is typically quantified at 95%.

Why is the Civil FBAR Willful Standard so Low?

That is a very good question in fact, even the own IRS chief counsel believed that the standard of proof would be clear and convincing evidence – which is in the middle, and typically quantified at around 75%.

Chief counsel reached this conclusion because the FBAR Willful Penalties are similar to civil tax fraud and in order to prove civil tax fraud the U.S. government must show clear and convincing evidence.

In the cases to date that have analyzed civil FBAR Penalties, and found that the lower preponderance of the evidence is the proper standard, then all surmised that no matter how much money you may owe for FBAR Willful penalties… It is just money.

Reckless Disregard (Civil vs. Criminal)

This issue was recently summarized very will in the case of In Re Garrity:

The Supreme Court explicitly acknowledged in Safeco that “[i]t is different in the criminal law. When the term ‘willful’ or ‘willfully’ has been used in a criminal statute, we have regularly read the modifier as limiting liability to knowing violations . . . . Civil use of the term, however, typically presents neither the textual nor the substantive reasons for pegging the threshold of liability at knowledge of wrongdoing.” 551 U.S. at 57 n.9.

Defendants concede that numerous courts have found that willfulness in the civil FBAR context includes reckless conduct. (ECF No. 106 at 11.)

  • See United States v. Williams, 489 F. App’x 655, 658 (4th Cir. 2012)
  • United States v. Kelley-Hunter, 281 F. Supp. 3d 121, 124 (D.D.C. 2017)
  • United States v. Katwyk, No. CV 17-3314-GW, 2017 WL 6021420, at *4 (C.D. Cal. Oct. 23, 2017)
  • Bedrosian v. United States, Civ. No. 15-5853, 2017 WL 4946433, at *3 (E.D. Pa. Sept. 20, 2017)
  • United States v. Bohanec, 263 F. Supp. 3d 881, 888-89 (C.D. Cal. 2016)
  • United States v. Bussell, No. CV 15- 02034 SJO, 2015 WL 9957826, at *5 (C.D. Cal. Dec. 8, 2015)
  • United States v. McBride, 908 F. Supp. 2d 1186, 1204 (D. Utah 2012)
  • United States v. Williams, No. 1:09-cv-437, 2010 WL 3473311

Defendants cite no case in which a court has held to the contrary. Rather, despite the clear distinction the Supreme Court has drawn between willfulness in the civil and criminal contexts, the cases Defendants principally rely on are criminal cases.

As the Supreme Court has made clear, those criminal cases do not control this case.

What is the Court Saying as to Reckless Disregard?

While this is not a Supreme Court ruling, the court is making the distinction between civil and criminal willfulness. And, in order to prove criminal willfulness, just proving ‘reckless disregard’ would be insufficient (since it lacks “intent”), but the same is not true for civil willfulness, in which clear “intent” is not required.

In order to prove civil willfulness, the U.S. Government need not prove intent — which is why “reckless disregard” is sufficient to prove civil willfulness.

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.

Golding & Golding, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

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 is a Board-Certified Tax Law Specialist Attorney (a designation earned by < 1% of attorneys nationwide.). He leads a full-service offshore disclosure & tax law firm. Sean and his team have represented thousands of clients nationwide & worldwide in all aspects of IRS offshore & voluntary disclosure and compliance during his 20-year career as an Attorney.

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. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
International Tax Lawyers - Golding & Golding, A PLC

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