FBAR Penalty Representation and Litigation
For decades, thousands of U.S. citizens and residents had interests in financial accounts located in foreign countries, but few of them understood that these accounts were required to be disclosed on a form known as a Foreign Bank Account Report (“FBAR”). It was not until very recently through the IRS offshore voluntary disclosure programs and subsequent publicity over offshore accounts that the consciousness was raised of both taxpayers and tax practitioners in this area. Now, “FBAR” is virtually a household word.
IRS Recommendations: Criminal and Monetary Penalties
The fact that few Americans heard of an FBAR until very recently or did not know anything about the U.S. taxation of foreign accounts has not prevented Internal Revenue Service (“IRS”) from recommending criminal prosecution for individuals that failed to timely disclose foreign financial accounts on an FBAR. Not only has the IRS been recommending criminal prosecution for individuals that failed to report foreign financial accounts on FBAR reports, the IRS has the ability assess some extremely serious civil monetary penalties. Civil penalties may be imposed for willful and non-willful failure to disclose foreign financial accounts on an FBAR. In cases of willful violations, the IRS can impose a penalty of $100,000 or fifty percent of the value of the undisclosed account, whichever is greater. This penalty is assessed on an annual basis, and could be assessed for each undisclosed financial account. In cases of non-willful violations, the IRS may assess a penalty up to $10,000. This penalty is also assessed on an annual basis, and could be assessed for each undisclosed financial account. In addition, the IRS could assess an additional penalty of $100,000 or fifty percent of the value of an undisclosed foreign financial account if it is determined that the holder of a foreign financial account failed to maintain proper records. All these penalties are typically assessed during an IRS audit.
IRS Strategy: Tax Audits and Assessment of FBAR Penalties
It is no secret that the IRS is in the process of cracking down on individuals who failed to timely disclose foreign financial accounts on a FBAR through audits. These audits are vastly different than typical IRS audits. In cases involving undisclosed foreign financial accounts, the IRS typically assigns an elite auditor to conduct the audit. The auditor can either refer the case to the United States Attorney for potential criminal prosecution or decide to assess civil FBAR penalties. In some cases, the IRS can assess both criminal and civil penalties. Even if the IRS keeps it “civil” and only assessed civil FBAR penalties, depending on the number and size of the undisclosed or late filed FBAR returns, the penalty could literally be in the millions.
IRS Collections of FBAR Penalties:
Once the IRS assesses FBAR penalties, the IRS can collect the penalties. The IRS can do all of the following to collect an FBAR penalty:
- Garnish wages;
- Seize tax refunds;
- Refer collection of an FBAR penalty to private collection agencies;
- Report the penalty to credit reporting bureaus;
- Foreclose on properties.
FBAR penalty assessments are not eligible to be discharged in a bankruptcy proceeding and it appears that there is no statute of limitations barring the collection of an FBAR penalty.
Given the high stakes involved in any FBAR case, if you have undisclosed foreign financial accounts, failed to timely disclose a foreign financial account to the IRS, or are currently being investigated by the IRS on any matter involving foreign financial reporting or international tax compliance, you need a law firm with significant and serious experience representing clients in FBAR and international tax matters. Moskowitz, LLP has experience in this area that few law firms can match. Our firm has literally represented hundreds of individuals who successfully disclosed previously undisclosed foreign financial accounts to the IRS. We have also successfully represented many individuals that the IRS audited and accused of criminally or civilly failing to disclose foreign financial accounts.
Moskowitz LLP Approach regarding FBAR Penalties
While we are often successful at minimizing or eliminating FBAR penalties before assessment, when necessary, we zealously and aggressively defend our clients in court. In fact, as of this December 2016, we are the only law firm in the United States that has successfully sued the IRS for the way it assesses FBAR penalties.