FinCEN 2018 - Financial Crimes Enforcement Network (Forms Summary) - Golding & Golding

FinCEN 2018 – Financial Crimes Enforcement Network (Forms Summary) – Golding & Golding

FinCEN 2018 – Financial Crimes Enforcement Network (Forms Summary)

Trying to juggle all the different international tax acronyms such as FinCEN, FBAR, Form 8300, can be confusing. 

Oftentimes, when a person learns about FinCEN (Financial Crimes Enforcement Network), it is because they are blindsided with the realization that they are out-of-compliance involving the filing, reporting and disclosure of foreign money, accounts and assets.

Common Buzzkill FinCEN scenarios

Example 1: Your Day is Ruined

David is originally from Taiwan. He’s out with friends after a long week and blowing off some steam when one of his friends ask him whether he filed an FBAR. 

David has no idea what his friend is talking about. After the friend explains what FinCEN is, and what the reporting requirements are (and kills David’s Buzz) David’s brain won’t shut off.

Sadly, he leaves the bar early to begin a very long research trek (not before stopping off to pick up a bottle of wine, of course).

Example 2: Michelle Meets Her New CPA

Michelle normally does her tax returns herself. While she is a high-income earner, her taxes are relatively simple – or so she thought. She goes to meet her new CPA for the first time, when he asks her about whether or not she has been filing reporting her foreign accounts, income, assets and investments to the IRS.

Michelle stares at him blankly, and after he describes the situation and potential penalties she faces, Michelle also stops off at the local bodega (just missing David on the way out), picks up her own bottle of wine and also settles into the computer for the evening.

FinCEN — What is it?

FinCEN is the Financial Crimes Enforcement Network. In all reality, the name is much more ominous than it needs to be.  For most people, all the term FinCEN refers to is the reporting foreign accounts or cash transactions to the U.S. government.

There are various different types of FinCEN forms, depending on whether you are an individual or business, and whether or not you are reporting foreign accounts or reporting cash transactions.

As provided on the FinCEN website:

:

The mission of the Financial Crimes Enforcement Network is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.”

Typical questions about FinCEN include:

  • What is FinCEN Form 114?
  • What is an FBAR?
  • What is FinCEN Form 105?
  • What is Form 8300?
  • What is a Currency Transaction Report (FinCEN Report 112)
  • What is a Designation of Exempt Person (FinCEN Report 110)
  • What is a FinCEN Suspicious Activity Report (FinCEN Report 111)
  • What is a FinCEN Registration of Money Services Business (FinCEN Report 107)
  • What is a Report of Foreign Bank and Financial Accounts (FinCEN Report 114)
  • What is a Report of Cash Payments Over $10,000 Received in a Trade or Business (FinCEN Form 8300)

What are the Common FinCEN Forms

These are the two (2) most common forms

What is FinCEN Form 114 (aka FBAR)?

FinCEN Form 114 is the notorious FBAR Form (Foreign Bank Account Reporting aka Report of Foreign Bank and Financial Account Form). We have written tens, if not hundreds of articles involving the FBAR, including cases, penalties, convictions, filing, etc.

What is an FBAR Statement?

An FBAR statement is a Report of Foreign Bank and Financial Accounts form. It is electronically filed annually with the Department of the Treasury online and is due at the same time your tax returns are due (including extensions) and some restrictions may apply.

Is it more than $10,000 per account, or in Total?

An FBAR is required to be filed when a person or business (explained below) has an annual aggregate total of foreign accounts that exceeds $10,000. It does not matter if all that money is in one account or if a person had 11 accounts with $1000.00 in each account (you get the picture, right?). Once your overseas foreign accounts exceed $10,000, it is now time to report all of the foreign accounts.

Who or What is a U.S. Taxpayer?

This question can get more and more complex depending on who you speak to and what the context of the question is. To that end, if you are either a US citizen, Legal Permanent Resident, or Foreign National Subject to US tax such as a visa holder (if you meet the Substantial Presence Test), then you should most likely file the annual FBAR form.

*If you are unsure whether you should file the form or not, you should speak with an experienced by lawyer to evaluate your particular situation.

I did Not have to File a Tax Return?

This can also get confusing, but it is important to remember that the FBAR is not filed with your tax return. Rather, while your tax return is filed directly with the Internal Revenue Service (by mail or online), your FBAR is filed online electronically directly with the Department of Treasury. Even if you do not meet the threshold requirements for filing a tax return, it does not mean you do not have to file an FBAR. If your annual foreign account balances exceed $10,000, you should file the FBAR.

What is FinCEN Form 105?

FinCEN Form 105 is used when people transfer money on their own person.

For example, you are traveling home to the U.S. from Taiwan, and your sweet grandma gives you a suitcase with $500,000 in it. She tells you not to ask where she got it, other than the fact that you should enjoy the money.

You are skeptical (your grandma was always a bit sheisty). She also tells you not to deposit the money, but rather travel with it (she doesn’t trust the banks). 

Unfortunately, as smart as your grandma is, she was unaware of Fincen 105.

As provided by FinCEN:

1) Each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time from the United States to any place outside the United States or into the United States from any place outside the United States, and


(2) Each person who receives in the United States currency or other monetary instruments In an aggregate amount exceeding $10,000 at one time which have been transported, mailed, or shipped to the person from any place outside the United States.


*A transfer of funds through normal banking procedures, which does not involve the physical transportation of currency or monetary instruments, is not required to be reported.

Other Common FinCEN Forms

We have reproduced the following more common forms for your review

FinCEN Form 8300

Form 8300 refers to the deposit of the cash transactions. The idea is that when businesses receive cash deposits, they may be allured into not reporting the transactions or the income. Therefore, the IRS wants to know about these cash deposits.

As provided by FinCEN/IRS:

Each person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions, must file Form 8300. Any transactions conducted between a payer (or its agent) and the recipient in a 24-hour period are related transactions. Transactions are considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.

FinCEN Currency Transaction Report (FinCEN Report 112)

A bank must electronically file a Currency Transaction Report (CTR) for each transaction in currency82 (deposit, withdrawal, exchange, or other payment or transfer) of more than $10,000 by, through, or to the bank. Certain types of currency transactions need not be reported, such as those involving “exempt persons,” a group which can include retail or commercial customers meeting specific criteria for exemption.

Multiple currency transactions totaling more than $10,000 during any one business day are treated as a single transaction if the bank has knowledge that they are by or on behalf of the same person. Transactions throughout the bank should be aggregated when determining multiple transactions.

FinCEN Suspicious Activity Report (FinCEN Report 111)

Suspicious activity reporting forms the cornerstone of the BSA reporting system. It is critical to the United States’ ability to utilize financial information to combat terrorism, terrorist financing, money laundering, and other financial crimes. Examiners and banks should recognize that the quality of SAR content is critical to the adequacy and effectiveness of the suspicious activity reporting system.

Within this system, FinCEN and the federal banking agencies recognize that, as a practical matter, it is not possible for a bank to detect and report all potentially illicit transactions that flow through the bank. Examiners should focus on evaluating a bank’s policies, procedures, and processes to identify, evaluate, and report suspicious activity. However, as part of the examination process, examiners should review individual SAR filing decisions to determine the effectiveness of the bank’s suspicious activity identification, evaluation, and reporting process. Banks, bank holding companies, and their subsidiaries are required by federal regulations53 to file a SAR with respect to:

  • Criminal violations involving insider abuse in any amount.
  • Criminal violations aggregating $5,000 or more when a suspect can be identified.
  • Criminal violations aggregating $25,000 or more regardless of a potential suspect.
  • Transactions conducted or attempted by, at, or through the bank (or an affiliate) and aggregating $5,000 or more…

A transaction includes a deposit; a withdrawal; a transfer between accounts; an exchange of currency; an extension of credit; a purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument or investment security; or any other payment, transfer, or delivery by, through, or to a bank.

What if you never Reported the Transaction(s)

If you never reported (or underreported) the money, you may consider entering into one of the approved IRS Voluntary Disclosure Programs.

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.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds 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.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

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:

Contact Us Today; Let us Help You.