Quiet FBAR Disclosure - Unreported Foreign Accounts | FBAR & Taxes (Golding & Golding)

Quiet FBAR Disclosure – Unreported Foreign Accounts | FBAR & Taxes (Golding & Golding)

Quiet Disclosure (otherwise known as “Silent Disclosure” or “Soft Disclosure”) of your foreign accounts and foreign income on an FBAR or late/amended tax return is a serious violation of U.S. Tax Law, which can subject you to very high fines, penalties and criminal investigation.

FBAR Quiet Disclosure

You’ve done the research (and then researched it again and again) and have come to the conclusion that you are out of IRS tax compliance because you never filed FBAR forms, disclosed your foreign accounts to the IRS or DOT, or reported your foreign passive income on your U.S. Tax Return.

FBAR – Foreign Accounts

While there are a number of different types of foreign accounts, some of the more common types of accounts, include:

  • Foreign Bank Accounts 
  • Foreign Investment Accounts
  • Foreign Retirement Account
  • Foreign Life Insurance Policy
  • Foreign Mutual Funds or ETF Investments

Expat Forums

You have read numerous blogs and Expat Tax Forums written by individuals who probably have little to no experience in actually filing these forms and generally like to wax poetic to anyone that will listen. Having never been interrogated by the IRS themselves, they convince you that submitting these forms to the DOT and IRS is a waste of time, and that the chances of the IRS or Department of Treasury finding you in the sea of non-compliant taxpayers is relatively slim.

As a result, if you decide you are going to break the law (Yes, a quiet disclosure is Tax Evasion/Tax Fraud, which is a Tax Crime) pursue a quiet disclosure/silent disclosure and submit amended tax returns and prior year FBARs without going through either of the IRS Offshore Disclosure Programs (OVDP or IRS Streamlined Program). 

While not everyone who submits a quiet disclosure/silent disclosure gets caught, for the ones who do it can be very costly endeavor — including loss of the money in the accounts and possibly your freedom depending on the facts and circumstances of your case.

The following is a case study of how a Quiet Disclosure or Silent Disclosure can go bad:

Case Study: Quiet Disclosure/Silent Disclosure

Scott is originally from Singapore but relocated to the United States nearly 10 years ago. Around eight (8) years ago he opened up foreign accounts in Singapore, Hong Kong and other generous tax countries which do not tax passive income.

Scott has a good job and continues to invest in foreign accounts. As a result, Scott has been able to amass a small fortune overseas. In fact, Scott is earning upwards of $10,000-$20,000 a year on his foreign investments in interest money. Moreover (and not coincidentally) in all of the countries that Scott maintains accounts, there is no passive income tax and therefore the money he receives overseas is not Tax Deducted at Source (TDS); thus, Scott receives the payments tax free.

Scott is aware that he is supposed to report his accounts on an annual FBAR statements and include the income on his US tax return but simply does not want to pay US tax on these monies. From his perspective, the money is earned overseas and therefore the US should not be entitled to tax.

FATCA

Fast-forward to 2014 and the enforcement of FATCA (Foreign Account Tax Compliance Act). Scott receives a “FATCA Letter” from his foreign banks letting him know he needs to respond to the bank and confirm/certify that he has complied with all of his US tax filing and payment requirements. Scott does research and learns that he could qualify for OVDP (Offshore Voluntary Disclosure Program) but not the streamlined program because his actions were willful.

Scott also realizes that two of his banks are considered “bad banks” and therefore he would be subject to a 50% penalty on the foreign accounts. When the 50% penalty is coupled with past tax liability, Scott would owe nearly the full balance of the foreign accounts to the IRS.

Therefore, Scott makes the fateful decision to submit a quiet disclosure.

Quiet Disclosure

Scott amends three years of tax returns and submits three years of FBARs to the IRS and DOT without the protection of OVDP. Scott does not hear from the IRS for a while and believes everything is good until he’s leaving the health club and notices two individuals in suits standing by his vehicle. The two individuals introduce themselves as IRS special agents and ask Scott if they can speak with them.

Scott has seen enough movies to know he should never speak with “the Fuzz” without counsel. Scott refuses to speak to the IRS Special Agents and says he wants to obtain an attorney. Scott is not arrested on the spot but understands he could be facing significant fines and penalties in this matter is not handled properly.

How did the IRS Learn of Scott’s Foreign Accounts?

Since some of Scott’s money was in bad banks, when these bad banks reported the names of US taxpayer accounts to the IRS and DOT, Scott’s name popped up multiple times – since he had multiple accounts in multiple foreign financial institutions. When the IRS and DOJ cross-referenced Scott’s account information with his US tax return and learned not only had he not reported the account information but also did not include the earnings in his tax return (and registered for the accounts as a Singaporean citizen and not a U.S. citizen), he immiedately got the attention of the criminal investigation unit.

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  earned 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.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

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

Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists 

The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.

In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

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:

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