What Constitutes “Willful” Failure to File An FBAR?

The willful failure to file an FBAR results in higher tax penalties than the nonwillful failure to do so. But how does the IRS determine that your failure to act was “willful”?

The U.S. Government’s stringent foreign bank account reporting requirements are accompanied by horribly disproportionate penalties for failure to comply with Foreign Bank Account Report (FBAR) filings. The penalties are especially severe if the IRS determines that your failure to file was willful.

If your undisclosed foreign assets are under investigation, it is crucial to obtain competent legal tax counsel to ensure that you have a detailed narrative that supports non-willfulness and reasonable cause for not having filed an FBAR.

What is “willfulness”?

When the IRS identifies a “willfulness” to evade FBAR requirements, it will look to see whether there was “a voluntary, intentional violation of a known legal duty”—specifically, whether you acted with knowledge that your failure to file the FBAR was unlawful. Whether or not you knew about the FBAR filing requirement may be inferred from your conduct.

Any conduct showing a possible intent to conceal foreign assets is suspect, including:

  • Not filing certain mandatory tax forms
  • Large cash deposits and withdrawals
  • Setting up offshore trusts or corporations
  • Using code words for account identification
  • Moving money from one foreign bank to another

Willful blindness is also willfulness

Taxpayers can no longer argue that they were unaware of the foreign reporting requirements – the FBAR has been well-publicized for many years.

Internal Revenue Manual section 4.26.16.6.5.1. provides some other examples of situations in which willfulness may be present.

Getting the right support from an experienced tax professional

The tax professionals at Moskowitz, LLP have an excellent track record in eliminating or mitigating FBAR penalties. The sooner you seek our support and guidance, the better we can help you. To learn more, contact our San Francisco office.

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