FBAR Criminal Investigations (2018) – Monetary Fines vs. Jail or Prison

FBAR Criminal Investigations (2018) – Monetary Fines vs. Jail or Prison by Golding & Golding

FBAR Criminal Investigations (2018) – Monetary Fines vs. Jail or Prison by Golding & Golding

Unfortunately, many unscrupulous attorneys and CPAs are falsely advertising the methods the IRS uses to issue criminal penalties against individuals who did not properly file an FBAR(s).

Moreover, these same “Tax Professionals” are making inappropriate statements designed to unnecessarily scare you into believing that by simply not filing your FBAR – you will go to jail for five years.

There is a difference between being hit with “Willful Penalties,” which have a criminal-like component to them, and actually being charged with a crime.

FBAR Crimes

While you most likely will not be heading to prison for your non-filing of FBARs, due the introduction of a new IRS International Tax Enforcement Group, your chances of getting hit with FBAR Penalties may increase.

In reality, the civil (non-willful) penalties alone are sufficient to motivate individuals to get into foreign account reporting compliance.

With that said, some people will get hit with criminal-like civil penalties (aka Willful) for the non-filing of FBARs. But, this does not mean they will become subject to actual criminal charges. The chances of being indicted for the non-filing of an FBAR(s) is very rare.

To be subject to a criminal charge, the IRS typically has to believe you were willful, refer your matter to the IRS Special Agents, who then have to believe you acted criminal, who then refer the case to the Department of Justice (DOJ) for their own investigation…who then decide whether the U.S. Government should pursue criminal charges.

Here are some important considerations to keep in mind as you scour the net:

The IRS Does Not Put You In Jail

The way some of these desperate attorneys try to scare you is by saying that if you do not file your FBAR, then you will go to jail for five years. First, the IRS cannot put you in jail. You will not receive a notice from the IRS saying you did not file your FBAR, so please report to jail for the next five years.

Rather, the IRS has to conduct an investigation against you. And, the IRS is somewhat limited in their power and scope.

If you were audited and the examiner believed you were willful, the first step would be for the IRS Agent to refer your case to the IRS special agents, who represent the criminal investigation Department of the IRS.

Therefore, if you are reading websites online, and come to the conclusion that you should have filed your FBAR, your first reaction should not be whether you are going to Jail or not – it should be contacting an experienced offshore disclosure attorney to discuss the facts and circumstances of your situation, and assess your specific situation.

And, please watch out for “Free Initial Telephone Consultations.” They are designed to bait and scare you, not inform you.

Civil vs. Criminal Investigation

The IRS is not required to pursue a criminal investigation in order to levy criminal penalties against you. In other words, the IRS must show that you were willful, in order hit you with willful penalties. They do not need to convict you of a crime. And, not everybody who was found to be willful is indicted for criminal charges.

Rather, the IRS keeps the distinction between willful and non-willful as unclear as possible, so they can reserve the right to try to push as many people as they can into the willfulness category (higher penalties). This is not the same as being charged with a crime.

Thus, the IRS can issue willful penalties (which are intense), but that does not mean that you are being criminally investigated for a crime. The IRS does have power to issue these types of penalties.

In a recent case, the court found that the IRS can issue criminal penalties in a civil arena, without proving the facts beyond a reasonable doubt (which is the standard for criminal cases).

In other words, if you get the wrong agent on the wrong day and they want to issue willful penalties, while it may connote criminal activity – it does not mean you are under criminal investigation and subject to jail or prison. It means you need to fight the penalties.

Criminal Cases are Rare

The IRS has pursued less than 3000 criminal cases in the last year alone. In other words, out of the millions of individuals who have foreign accounts or offshore accounts, the IRS has indicted minute percentage of them. And, in those cases typically there are many other facts and circumstances that push them into the criminal category.

For example, recently Manafort and Gates were indicted for criminal actions, and part of it included knowingly omitting status of the foreign accounts on their tax returns. While you may have also willfully failed to report your foreign accounts, Manafort had numerous shell companies, illegal transfers of money and issues involving structuring. They had false companies set up to receive money, which were then transferred into other companies in order to avoid detection.

This is probably different than the few accounts you had overseas that you may believe you should have reported but didn’t.

Yes, you too should probably enter Offshore Disclosure to avoid the monstrous penalties the IRS can issue if they find you to be willful, but the chance of criminal indictment is relatively small.

Factors to Consider

In deciding whether the IRS is going to recommend a criminal investigation, there are different factors that they will take into consideration. Some of these factors include:

  • Is the money illegally sourced?
  • Have FBAR or similar penalties been issued previously?
  • Has the person been and indicted previously?
  • How many accounts are there?
  • How did the money travel?
  • Was any of the money laundered?
  • Are there issues involving structuring?
  • Was a third-party conduit used?

These are just some of the many issues and considerations the IRS will look at in determining the types of penalties they want to issue, and whether they should pursue a criminal investigation.

Therefore, just because you may have intentionally or recklessly disregarded the responsibility to report foreign and offshore accounts, assets, investments, or income does not mean you’re going to prison.

But The Monetary Penalties Can Be High

While most non-criminal individuals we do nearly anything to avoid prison, the monetary penalties alone that the IRS can issue is enough of a reason to consider entering into one of the approved IRS offshore voluntary disclosure programs.

Even a person who was non-willful, can be hit with fines as high as $10,000 per account, per year — upwards of six years. If a person is found to be willful, even though they may not spend five years in prison, the IRS, can pursue a 50% penalty per year for up to the 100% value of the account (Use of the 300%, but to avoid any constitutional issue it appears the IRS has limited collection, to only everything you have in the accounts).

IRS’ New International Tax Enforcement Group 

In order to try to hedge its bets and put itself in the best position to try to collect as much money as possible, the IRS is focusing in large part on international tax – and specifically on penalizing individuals through tax enforcement.

Welcome to the IRS’s new International Tax Enforcement Group program.

New International Tax Program

Prior to 2014 and the enforcement of FATCA (Foreign Account Tax Compliance Act), the IRS has less resources to obtain information regarding your offshore, or foreign accounts.  Many foreign financial institutions were simply not reporting US account holder information to the IRS – and why would they? It’s not as if the Foreign Financial Institutions care about what the IRS thinks….until the introduction of FATCA.

Under FATCA more than 110 foreign countries (50 more countries than the US entered into income tax treaties with) have entered into IGA (intergovernmental agreements) with the IRS to promote reciprocal reporting of account holder information. Primarily, it means your Foreign Financial Institution will probably be reporting your account information to the IRS.

Likewise, more than 300,000 Foreign Financial Institutions have agreed to proactively report this information to the IRS. In fact, even financial institutions in countries that have not signed IGAs are apparently reporting as well (in order to stay in the IRS good graces).

Golding & Golding, A PLC

We have successfully represented clients in more than 1,000 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.