FinCEN Form 114 Penalties - You may Qualify for Reasonable Cause (Golding & Golding)

FinCEN Form 114 Penalties – You may Qualify for Reasonable Cause (Golding & Golding)

FinCEN Form 114 Penalties – You may Qualify for Reasonable Cause

FinCEN Form 114 Penalties: If you have unreported foreign accounts, you may be subject to IRS FinCEN 114 Penalties — but you may qualify for FinCEN Form 114  Penalty Avoidance by submitting a “reasonable cause statement package.”

Golding & Golding is an International Tax Law Firm. Our Team is led by a Board Certified Tax Lawyer Specialist, and our FBAR Lawyers have worked with thousands of clients.

FinCEN Form 114 Penalties

FinCEN Form 114 penalties vary. Sometimes, the IRS penalties for unfiled or late FinCEN Form 114 Penalties are bad, and sometimes, well…they’re not so bad. You may even receive a Warning Letter in Lieu of Penalty. It jut depends on the different facts and circumstances of your situation

FinCEN 114 Penalties can be Civil or Criminal. They can then be broken down further, but the threshold question, is whether the IRS will get you for Civil (money) or Criminal (money, and worse).

Civil FinCEN Form 114 Penalties

Civil FBAR Penalties are limited to monetary penalties. A civil FBAR Penalty is a penalty that is focused on monetary fines or warning letters (waivers) — without any risk of criminal investigation or prosecution.

U.S. Code citationCivil Monetary Penalty DescriptionCurrent Maximum
31 U.S.C. 5321(a)(5)(B)(i)Foreign Financial Agency Transaction – Non-Willful Violation of Transaction$12,921
31 U.S.C. 5321(a)(5)(C)Foreign Financial Agency Transaction – Willful Violation of TransactionGreater of $129,210, or 50% of the amount per 31 U.S.C.5321(a)(5)(D)
31 U.S.C. 5321(a)(6)(A)Negligent Violation by Financial Institution or Non-Financial Trade or Business$1,118
31 U.S.C. 5321(a)(6)(B)Pattern of Negligent Activity by Financial Institution or Non-Financial Trade or Business$86,976

Penalties for Civil FinCEN Form 114 Penalties can be Broken down into two (2) categories:

  • Willful 
  • Non-Willful

Non-Willful FinCEN Form 114 Penalties

These FinCEN Form 114 Penalties are typically the least severe penalties. A FinCEN Form 114 non-willful penalty is a “lower-level” penalty for not filing. The non-willful penalties can be high, BUT, typically they are not as high as willful penalties.

Willful FinCEN Form 114 Penalties and (Reduced) Willfulness

The Willful FinCEN Form 114  Penalty is typically more severe. An FBAR Willful Penalty is penalty for acting willful, willfully blind, or with reckless disregard in not filing the FBAR. We have provided detailed explanations and analyses in our free International Tax Law library about these different terms, and what they mean.

Criminal FinCEN Form 114 Penalties

Criminal FinCEN Form 114 Penalties may include monetary penalties and incarceration. This is when the IRS refers the matter to the Department of Justice (DOJ) or other 3 letter government faction for criminal investigation and possible prosecution. These are not very common, but unfortunately they are on the rise.

U.S. Code citationCriminal Violation & DescriptionCriminal Penalty
31 C.F.R. §103.59(b) Willful – Failure to File FBAR or retain records of accountUp to $250,000 or 5 years or both
31 C.F.R. §103.59(c) Willful – Failure to File FBAR or retain records of account while violating certain other lawsUp to $500,000 or 10 years or both
31 C.F.R. §103.59(c)  Knowingly and Willfully Filing False FBAR$10,000 or 5 years or both
Civil and Criminal Penalties may be imposed together. 31 U.S.C. § 5321(d).See StatutesSee Statutes

A few important considerations:

FinCEN Form 114 Penalty Avoidance

While many non-willful taxpayers will get into IRS compliance with Streamlined, there is an alternative — FBAR Reasonable Cause, which can also be used for FATCA and other International Informational Return submissions.

FinCEN Form 114 Reasonable Cause Form?

No, because it is not form. It is a legal letter drafted by a highly experienced offshore voluntary disclosure lawyer to try to convince the IRS that you are worthy of a penalty waiver.

What Kind of Offshore Penalties can I be Liable For?

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.

Hiring a FinCEN Form 114 Reasonable Cause Submission Attorney

People Can be Whomever They Want to be Online

And that is the problem.

In recent years, we have had many clients come to us after being horribly represented by inexperienced tax counsel. While we are sure it is a problem in many fields, it seems to run rampant in IRS offshore voluntary disclosure.

These Attorneys ‘manipulate’ their past legal experiences, such as working for the IRS —  to make themselves sound more experienced than they are. You later find that they never worked as an attorney for the IRS, or even in the offshore disclosure department.  

The IRS has nearly 100,000 employees, and just being one of them does not make an attorney qualified to be an effective and experienced offshore voluntary disclosure tax attorney specialist.

IRS Offshore Disclosure is complex enough for experienced practitioners who focus exclusively in the area of law, never mind relative newcomers who are trying to handle more than just offshore voluntary disclosure as part of their everyday tax practice.

We know, because those cases usually end up on our door-step.  Examples of recent cases we had to takeover from less experienced Attorneys can be found by Clicking Here (Case 1) and Clicking Here (Case 2).

How to Find Experienced & Reputable Counsel

Nearly all the experienced Attorneys in this field will have 5 Main Attributes:

  • Board Certified Tax Law Specialist
  • Master’s of Tax Law (aka LL.M.)
  • Dually Licensed as an Enrolled Agent or CPA
  • Around 20-Years of Private Practice experience
  • Extensive Litigation, Trial and related high-stakes experience.

Understanding How Tax Prep & Legal Fees Work in Offshore Disclosure

A summary of Offshore Disclosure Lawyer and Tax/Accountant Fees.

Offshore Disclosure — Flat-Fee, Full-Service

All Non-Willful cases should be Flat-Fee, Full-Service for both Tax and Legal.

*If you were willful, the submission and analysis is much different depending on whether the IRS has contacted you yet, if you are under investigation, etc. — and you should speak with experienced counsel.

Need a Second Opinion about Reasonable Cause

Lately, with rumblings of the Streamlined Disclosure Program, aka Streamlined Voluntary Disclosure aka Streamlined Filing Compliance Procedures coming to an end, some younger and inexperienced attorneys are in disarray — and handing out terrible advice to make a quick buck — and putting clients at risk. 

If you are unsure about advice you received about Reasonable Cause or the Streamlined Disclosure program, let Golding & Golding offer you a second opinion, with a reduced-fee initial consultation.

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