Treasury Department Form TD F 90-22.1
(Report of Foreign Bank and Financial Accounts)
Under the Bank Secrecy Act, U.S. citizens or residents (green card holders) must file a report with the U.S. Treasury if he or she has a financial interest in a foreign financial account with a value exceeding $10,000 at any time during the calendar year. Taxpayers comply with this law by noting the account on Schedule B of Form 1040 of their tax return and by filing FBAR information returns. Willfully failing to file an FBAR report can be punished under both civil and criminal law. The penalties for not timely filing an FBAR are as follows:
||Up to $10,000
|Willful Failure to File FBAR
||Up to $100,000 or 50 percent of the value of account at time of violation. Whichever is greater.
||Up to $250,000 or 5 years in prison or both.
The Secretary of the Treasury promulgated 31 CFR Section 103.24, which states in pertinent part:
(a) Each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) having a financial interest in, or signature or other authority over authority over, a bank, securities or other financial accounts in a foreign country shall report such relationship to the Commissioner of the Internal Revenue for each year in which such relationship exists, and shall provide such information as shall be specified in a reporting form.
The Secretary also stated that persons having financial interest in, or signature authority over, financial accounts in a foreign country with an aggregate value exceeding $10,000 at any time during the calendar year must file an FBAR information returns. Since you had signature authority in foreign bank accounts during the 2003 through 2010 tax years that exceeded $10,000 each year in the aggregate, pursuant to the applicable federal law, you had a legal duty to disclose these foreign bank accounts on FBAR information return. The failure to timely file FBAR information could result in criminal and civil penalties.
In order for the Government to assess criminal penalties and/or civil penalties against you for willfully not disclosing your foreign accounts, the Government must establish that your omission of the account was due to “willfulness” or that you “willfully” failed to disclose your foreign accounts.
For criminal tax purposes, the term “willfulness” has typically been defined as requiring an “evil motive,” “bad faith,” “deliberate and not accidental” or an act done “with specific intent.” A typical jury instruction defining willfulness reads as follows:
An act is done “willfully” if done purposely with specific intent to disregard the law, or to do that which the law forbids. The word “willfully” as used in connection with this offense means with a bad or evil purpose in order to defraud the Government. Defendant’s acts in connection with [this matter] are not “willful” if they are done with inadvertence, carelessness or honest misunderstanding of what the law required, or as a result of his good faith reliance on a consultant *** Willfulness may be inferred from all the facts and circumstances in evidence.
As indicated above, willfulness is a state of mind. If you were not aware of this requirement to report your foreign accounts, the Government will have a difficult time building a criminal case against you for not timely reporting your foreign accounts on an FBAR information return. With that said, you should be advised that the IRS has threatened to recommend criminal prosecution if it is determined that a taxpayer willfully failed to timely file an FBAR information return. Such a threat means that the Government will likely be more aggressive with prosecuting perceived crimes in this area than would be expected. The criminal penalties associated with not timely filing an FBAR return are significant:
- If the failure to file the FBAR is deemed to be a criminal violation, the penalty can include a fine of up to $250,000, imprisonment for up to five years, or both.
- If the failure to file is deemed to be part of a criminal activity, (i.e. it occurs during the violation of another law or is part of an illegal activity involving more than $100,000 in a 12-month period), the maximum fine increases to $500,000 and the possibility of imprisonment increases to up to ten years.
- Both the $500,000 penalty and ten-year prison term will be subject to the applicable sentencing guidelines.