IRS Files Lawsuit Against Taxpayer to Collect FBAR Penalty
When it comes to the IRS and foreign account penalties for willful failure to file an FBAR (Report of Foreign Bank Account and Financial Account form, aka FinCEN 114), the Internal Revenue Service means business.
- 1 IRS Files FBAR Lawsuit
- 2 The Case of Arvind Ahuja
- 3 Schedule B, Question 7
- 4 FBAR Willfulness
- 5 Criminal Conviction
- 6 Liability to the U.S. Government
- 7 How to Avoid or Reduce FBAR Penalties?
- 8 What Type of Attorney Should I Hire?
- 9 We Specialize in Safely Disclosing Foreign Money
- 10 Golding & Golding, Board-Certified Tax Law Specialist Team
IRS Files FBAR Lawsuit
It is becoming more and more apparent that the IRS will take taxpayers with unpaid FBAR fines and penalties to task — even if it means filing a lawsuit to collect unpaid FBAR penalties, if the IRS believes payment is not forthcoming or the statute of FBAR collection is going to expire.
Unlike other types of penalties, there are various nuances involving how the IRS can collect FBAR penalties.
This is mainly because FBAR penalties fall under title 31 and not title 26. As a result, there is a limited time for the IRS to collect penalties (and limited outlets for collection) because while the IRS has the power and authority to collect FBAR penalties — the form is a creation of FinCEN (Financial Crimes Enforcement Network).
In one recent case, the IRS filed a complaint in District Court in the Eastern District of Wisconsin to enforce FBAR penalties to the tune of $5,000,000 ($5M).
The Case of Arvind Ahuja
Here are some relevant background facts:
Ahuja is a prominent neurosurgeon practicing in Kenosha, Wisconsin. He is certified by the American Board of Neurological Surgery and specializes in treatments for disorders of the brain, spine, arteries and peripheral nerves.
In 2008-2009 Ahuja day-traded approximately $250 million, mainly in stocks, foreign currencies, and futures.
During 2009, Ahuja had an interest in at least one foreign bank, securities, or other financial account in which the aggregate balance, at some time during 2009, exceeded $10,000.
In 2009 the highest aggregate balance in Ahuja’s HSBC India accounts was $9,245,081.
Ahuja was required to report his interest in a foreign bank, securities, or other financial account for the 2009 calendar year, to the United States by submitting, by June 30, 2010, a form known as the TD F 90.22-1
Ahuja did not submit the FBAR by June 30, 2010.
Schedule B, Question 7
When it comes to reporting foreign accounts, one of the most important aspects of the reporting is whether a person marks “Yes” on schedule B, Question seven. The question refers specifically to ownership of or signatory authority over foreign accounts.
In this particular situation, the defendant filed a schedule B, but marked “No” for the questions involving accounts and FBAR filing.
As further provided by the court filings:
On his IRS Form 1040 for 2009, Ahuha checked “no” on that part of Schedule B requiring him to disclose his interest in foreign bank accounts. 1
In August of 2008 and on subsequent dates, Ahuja’s accountant informed Ahuja of his obligation to report his interest in any foreign financial accounts.
The government alleges that not only did defendant mark “No” regarding ownership or authority over foreign accounts, but that he knew he had a requirement to disclose this information (aka Willfulness)
Therefore, the Government alleges that defendant was willful. Thus, Defendant should be subject to enhanced FBAR penalties, which essentially equates to a 50% penalty on the maximum value of the unreported Accounts.
More specifically, as provided by the court filings:
Ahuja knew or should have known he had a duty to report his interest in the foreign financial accounts.
On July 12, 2017, a delegate of the Secretary of the Treasury timely made an assessment in the amount of $4,622,540.50, under 31 U.S.C. § 5321, against the defendant, Arvind Ahuja, for his willful failure to submit a FBAR for the year ending December 31, 2009, and assessed both a latepayment penalty of $63,069.19, under 31 U.S.C. § 3717(e)(2) and 31 C.F.R. § 5.5(a), plus interest.
The amount assessed under 31 U.S.C. § 5321 is commonly known as a “FBAR Penalty.” The FBAR Penalty assessed is 50% of the account balance on the day of the FBAR violation.
Defendant was found guilty of failing to willfully report foreign bank accounts.
On August 22, 2012, Ahuja was found guilty by a jury in this district for, among other charges, his willful failure to submit a Report of Foreign Bank and Financial Accounts and filing a false income tax return for the year ending December 31, 2009
On February 6, 2013, Arvind Ahuja was sentenced to three years probation, community service, a $350,000 fine for the false-return offense, and a $350,000 fine for the FBAR offense
Liability to the U.S. Government
As a result, defendant was found to be liable to the tune of $5 million. This is because not only was there a willful FBAR Penalty, but defendant was also found guilty of fines totaling around $700,000.
How to Avoid or Reduce FBAR Penalties?
If you are out of compliance for failing to properly report your foreign/offshore accounts, you may consider entering one of the approved IRS offshore voluntary disclosure programs/tax amnesty program to safely get yourself into compliance before it is too late.
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.)
- 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.
Golding & Golding, Board-Certified Tax Law Specialist Team
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