What ‘Penalty of Perjury’ Means for Tax Returns and FBAR

What ‘Penalty of Perjury’ Means for Tax Returns and FBAR

What ‘Penalty of Perjury’ Means for Tax Returns, FBAR and FATCA

When a U.S. taxpayer files a tax return, they are not required to have that tax return notarized or witnessed by a third party. But, when taxpayers do sign a U.S. tax return it is very important to note that they are filing that return under penalty of perjury — in other words, by signing the tax return, the taxpayer is taking the affirmative step of acknowledging that the information contained in the return is true and correct to the best of their knowledge. For taxpayers who intentionally misrepresent or omit facts on the tax return, it can lead to problems with the IRS, including the Internal Revenue Service or Department of Justice launching an investigation and even possible civil or criminal fines and penalties. It is also important to distinguish a mistake from an intentional misrepresentation or omission. Simply making a mistake on a tax return does not mean the taxpayer would be subject to fraud charges. But, when a taxpayer knowingly misrepresents or omits material facts, such as income that was received, this may result in a high-risk tax audit and ultimately fines and penalties. Let’s review the basics of what it means to sign a tax return under penalty of perjury.

18 U.S.C. 1621 (CH 79) Perjury Generally

Whoever—

• • • having taken an oath before a competent tribunal, officer, or person, in any case in which a law of the United States authorizes an oath to be administered, that he will testify, declare, depose, or certify truly, or that any written testimony, declaration, deposition, or certificate by him subscribed, is true, willfully and contrary to such oath states or subscribes any material matter which he does not believe to be true; or

    • in any declaration, certificate, verification, or statement under penalty of perjury as permitted under section 1746 of title 28, United States Code, willfully subscribes as true any material matter which he does not believe to be true

Penalty of Perjury Statement

The Form 1040 penalty of perjury of statement provides the following:

• • • Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge

      • is guilty of perjury and shall, except as otherwise expressly provided by law, be fined under this title or imprisoned not more than five years, or both. This section is applicable whether the statement or subscription is made within or without the United States.

As summarized by the Department of Justice:

• • • Sections 1621 and 1623 of title 18, variously amended, of the U.S. Code define perjury before a Federal tribunal. The elements of perjury are

      •  (1) that the declarant took an oath to testify truthfully,

      •  (2) that he willfully made a false statement contrary to that oath

      •  (3) that the declarant believed the statement to be untrue, and

      •  (4) that the statement related to a material fact. 

Intentional Omission or Misrepresentation

When it comes to making false representations on the tax return, perjury can come from either intentionally misrepresenting facts or intentionally omitting facts. For example, if a taxpayer under-reports income from a particular source — that can be considered an intentional misrepresentation. Likewise, if the taxpayer fails to include an entire source of income from a specific employer for example that could be considered an intentional omission, and both could be considered a form of perjury.

International Reporting, Schedule B, FATCA and FBAR

In recent years, the Internal Revenue Service has significantly increased enforcement of foreign accounts compliance from matters involving international assets, investments, accounts, and income. When the taxpayer signs a tax return comment is important to note that Schedule B and Form 8938 are both common forms that involve international information reporting and income and are included as part of a 1040 tax return. Thus, by signing under penalty of perjury when the taxpayer knows that they are submitting false information, they may be perjuring themselves as to these offshore assets — which may lead to significant international fines and penalties. While the FBAR is not technically a tax form, Schedule B of the tax return refers specifically to the FBAR. Thus, the  IRS would probably take their position by falsely making statements on the tax return involving foreign accounts, that that would extend to the F bar.

Know the Contents of a Tax Return Before Signing

Taxpayers should be aware of the contents of the tax return before signing it, even when it is prepared by a tax professional. Whenever a person submits a tax return they should be sure to review the return before it is submitted, so that the taxpayer is not submitting returns in which the taxpayer is unaware of its contents — noting, the same rules apply even if the return is being electronically submitted. Even if a tax return is electronically submitted, it is still submitted under penalty of perjury even if it does not include a wet signature.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.