The Never-Ending Saga of FBARs and IRS Penalties for FBAR
Another day and another case involving FBAR penalties, compliance, and enforcement.
The best image I can try to provide for you regarding the current state of FBAR penalty enforcement would be the scene from National Lampoon’s European Vacation when Clark Griswold and family circle around Parliament and Big Ben, over and over…but never getting anywhere.
- 1 Meet Mr. and Mrs. Shinday – They Had Foreign Accounts
- 2 They Avoided Reporting the Foreign Accounts
- 3 Defendants Retained an Accountant
- 4 Defendant’s Committed the Cardinal Sin…Partial Reporting
- 5 Defendants Get Stuck in a Reverse Egg-Shell Audit
- 6 The IRS issues Penalties
- 7 Defendants Argue for Dismissal Based on Penalty Value
- 8 Not Surprisingly, the Court is Unmoved
- 9 What if I am Out of IRS Compliance?
- 10 We Specialize in Safely Disclosing Foreign Money
- 11 Be Careful of the IRS
- 12 Golding & Golding, A PLC
Meet Mr. and Mrs. Shinday – They Had Foreign Accounts
The typical background applied in this case as well. These individuals had money overseas (at UBS).
“Defendants had an investment account at UBS AG (UBS), a bank in Switzerland, from 2005 through 2008, among other years.
Defendants’ UBS account had year-end balances of$350,019, $361,819, $420,893, and $15,003 in 2005, 2006, 2007, and 2008, respectively.”
They Avoided Reporting the Foreign Accounts
Despite having actual knowledge of their reporting requirements, the Shinday’s attempted to circumvent reporting by moving the money to India.
“In 2008 UBS advised defendants of new laws that would apply to U.S. citizens with foreign accounts and recommended that defendants close their UBS account.
Soon after, defendants began withdrawing the funds in their UBS account. They transferred most of the funds in the UBS account to their SBI (State Bank of India) accounts in 2008 and transferred the remaining balance to SBI in 2009. Defendants requested that UBS send all documentation relating to the closure of their account to T.J.P.”
Defendants Retained an Accountant
Defendants prepared their own initial drafts of their returns. Specifically:
“Defendants filed joint federal income tax returns (Forms 1040) for the 2005 through 2011 tax years. They hired J.B., a certified public accountant, to file those returns.”
“Defendants prepared their 2005 through 2010 returns as follows. Mr.Shinday prepared an initial draft of each return, including attached schedules. He then sent the draft to J.B., who finalized the returns for filing and, if necessary, asked defendants for additional information.”
Defendant’s Committed the Cardinal Sin…Partial Reporting
It is pretty tough to argue against Willful penalties, when a person reports some foreign accounts, but not other accounts.
“When preparing defendants’ 2005 through 2010 tax returns, J.B. asked defendants whether they engaged in any foreign activities. Defendants reported certain investments they had in Canada but did not disclose to J.B. their UBS or SBI accounts.”
“Defendants disclosed the existence of the SBI accounts on their 2011 tax return. They did not, however, file a timely FBAR relating to that year.”
Defendants Get Stuck in a Reverse Egg-Shell Audit
With a reverse eggshell audit, the IRS already has your information, they just don’t let you in on the secret.
“The IRS conducted an examination of defendants’ 2005 through 2011 income tax returns. During the audit, when the IRS asked defendants whether they had any foreign activities or accounts, they disclosed only two Canadian investment accounts.
“Defendants later admitted during the audit that they owned the UBS and SBI accounts.”
They reside in California, and they knew they were supposed to report their money to the IRS, but they didn’t.
The IRS issues Penalties
The IRS ended up issuing FBAR penalties against defendants
“Non-willful penalties were issued against Nila Shinday for the tax years 2007 to 2011 ($10,000 each) for a total penalty of $50,000.
Willful penalties were issued against Money Shinday in the amount of $257,888, which represents 25% of the combined 2006 year-end balance of defendants’ UBS and SBI accounts, equaling $1,031,548, and the penalty was split, and even applied to each year (2007-2011)”
Defendants Argue for Dismissal Based on Penalty Value
In some recent cases, the court had stated that due to a “glitch” (aka, conflict between the statute and the regulation), the maximum willful FBAR Penalty is $100,000.
Defendants then argue that since the penalty exceeded the $100,000 total, it is improper and must be dismissed.
Not Surprisingly, the Court is Unmoved
The movants refers to the two cases cited for ‘precedent,’ which are Colliot and Wahdan and the Court quickly distinguishes them as having no bearing on the current matter.
Distinguished because it only referred to a situation in which a more than $100,000 FBAR penalty was issued in a single year.
Similarly, the issued hinged on annual FBAR penalties that exceeded $100,000.
In the current case, the total FBAR penalty of about $257,000 was a multi-year penalty, that when split over multiple years, was less than $100,000 annually.
What if I am Out of IRS Compliance?
When you have not met your prior year IRS foreign bank account compliance obligations, your best options are either the traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore 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.
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.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 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.