A failure to file Foreign Bank Account Reports (FBARs) can lead to substantial tax penalties. The amount of the penalties will depend on several factors:
- The number of undisclosed foreign accounts.
- The number of years where the FBARs should have been filed, but weren’t.
- Whether the violations were willful or non-willful
Even in cases of non-willful violations, the penalties can be severe. There are programs taxpayers can use to voluntarily disclose their foreign accounts and limit their exposure to FBAR penalties.
Non-Willful FBAR Violations
Each non-willful FBAR violation can result in a penalty not to exceed $10,000 per violation. That might not sound terrible, but each undisclosed account can be a separate violation, and each year the accounts weren’t disclosed can be considered a separate violation.
On top of that, the IRS can go back six years for FBAR penalty assessments, rather than the typical three-year period for regular tax audits. If you failed to disclose three accounts for six years, that’s 18 FBAR violations.
It’s important to note that the penalty can’t exceed $10,000. The IRS has discretion to reduce the amount of FBAR penalties or to waive them entirely.
Willful FBAR Violations
Willful FBAR violations have even higher penalties. The penalty can the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.
Criminal charges are also a possibility for willful FBAR violations. There is no hard-and-fast rule for determining willfulness, and you should talk with a tax attorney to determine how the IRS might view your specific case.
Avoiding FBAR Penalties
You can avoid FBAR penalties by filing your FBARs! But what if you just found out that you should have filed an FBAR last year—or the past several years—and didn’t?
Remember, the IRS can assess penalties for violations that happened during the past six years. If you just send in the current year FBAR, you are still at risk of getting hit with massive FBAR penalties.
Fortunately, there are several disclosure options available. If you are concerned that your conduct could be seen as willful, the Offshore Voluntary Disclosure Program is your best option. For non-willful violations, you can use the Streamlined Compliance Procedures to report your undisclosed foreign accounts.
Choose the Right Voluntary Disclosure Option
Each of these programs has costs and benefits. Consult with a tax attorney to make sure you choose the right voluntary disclosure program and reduce your exposure to FBAR penalties.
Contact The Gartzman Law Firm to speak with an Atlanta tax attorney about your case. Request your consultation by calling (770) 939-7710.