Tag Archives: foreign bank accounts

FBAR

By:  Coleman Jackson, Attorney, Certified Public Accountant
July 16, 2019

FBAR - foreign bank accounts

 

The 1970 Currency and Foreign Transactions Reporting Act, which is otherwise known as the Bank Secrecy Act requires U.S. residents, citizens and businesses with foreign bank accounts and certain other overseas assets to report those interest to the Financial Crimes Network annually on Form 114 by April 15th of the following year. Form 114 is the Report of Foreign Bank and Financial Accounts or (FBAR). The Bank Secrecy Act has a number of reporting requirements that are placed on financial institutions as well as those placed persons with foreign asset interests.  The record keeping and reporting requirements placed on  foreign account holders  are set out in detail in 31 U.S.C. Sec. 5414Form 114, the FBAR must be filed electronically through the Bank Secrecy Act E-Filing Network website.  The Financial Crimes Network is an agency of the United States Treasury but it is not the Internal Revenue Service.  These are two separate agencies under the U.S. Department of Treasury.

 

The Bank Secrecy Act at 31 U.S.C. Sec. 5414 also requires taxpayers with foreign bank accounts to disclose those accounts on their annual federal tax returns.

 

The Bank Secrecy Act at 31 U.S.C. Sec. 5414 also requires taxpayers with foreign bank accounts to disclose those accounts on their annual federal tax returns.  IRS Form 1040 at line 7a of Schedule B specifically asks whether the taxpayer has an interest or signatory authority over a foreign bank account.  A ‘yes ‘answer to this question on Schedule B requires the taxpayer to identify the country of the account and certain other details.  A taxpayer’s failure to check the box ‘yes’ when they have foreign bank interest or signatory authority over a foreign asset seriously increases their legal jeopardy because courts have said that failure to ‘check the box’  constitutes a willful violation of the  Bank Secrecy Act.  Failure to read the return has been held to be insufficient to avoid liability under the Act.  Avoiding knowledge of the Acts requirements has not been a successful plan.   Federal courts all over the country have addressed these various defenses and found them lacking weight.

 

IRS Form 1040 at line 7a of Schedule B specifically asks whether the taxpayer has an interest or signatory authority over a foreign bank account.

 

When a violation of the Bank Secrecy Act is not willful, the FBAR penalty for failure to disclose financial interest in foreign bank accounts, securities or other financial assets is capped at $10,000.  This cap only applies to non-willful violations of the FBAR statute.  Failure to check the box correctly and failure to disclose to a tax return preparer the existence of foreign bank accounts or other assets overseas is extremely likely to be found to be a willful violation of the Act.  The penalty permitted under the Bank Secrecy Act for a willful violation is equal to the greater of $100,000 or 50% of the highest balance in the account at the time of the violation.  There are also criminal penalties for violation of the Bank Secrecy Act if a taxpayer is tried and convicted under the Act.  Under the law, the Internal Revenue Service has 6 years from the date of the violation to assess the FBAR penalty and they can sue the taxpayer or the taxpayer’s estate to the collect the penalties.  Note that assessed FBAR penalties do not go away with the death of the taxpayer.

 

If the IRS assess FBAR penalties and the taxpayer refuses to pay them, the U.S. government can seek to collect the penalties in federal court pursuant to 31 U.S.C. Sec. 5321(b)(1).

 

Again, If the IRS assess FBAR penalties and the taxpayer refuses to pay them, the U.S. government can seek to collect the penalties in federal court pursuant to 31 U.S.C. Sec. 5321(b)(1).   The government must demonstrate in court by a preponderance of the evidence that (a) the taxpayer is a U.S. resident, citizen or business entity subject to the Bank Secrecy Act, (b) the taxpayer had a reporting obligation under the Bank Secrecy Act and failed to satisfy that reporting obligation, and (c) the nature of the taxpayer’s violation in terms of non-willful or willful violation of the statute, and (d) the taxpayer has failed to timely pay the assessed penalty.  The taxpayer must plead and prove any statute of limitations defects in the government’s case.  FBAR cases, as a general matter, are fact based cases.  Taxpayers win some and loose some.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Federal Courts Clarify Standard for Proving Taxpayer’s Willful Violation of Report of Foreign Bank and Financial Accounts (FBAR)

By:  Coleman Jackson, Attorney and Certified Public Accountant
February 13, 2019

Federal Courts Clarify Standard for Proving Taxpayer’s Willful Violation of Report of Foreign Bank and Financial Accounts (FBAR)

 

United States citizens, lawful permanent residence and certain other persons that are classified under 31 U.S.C. Sec. 5311 and promulgated Regulations must file with the Financial Crimes Network annually a Report of Foreign Bank Account, Form 114.  The U.S. persons covered under the disclosure law must file the report each year for foreign bank accounts exceeding $10,000 in the prior calendar year whether it is a single account or an aggregate of accounts.  If the $10,000 threshold is met, FBAR reporting requirements are triggered.

 

Form 114 FBAR reporting

 

The amount of the FBAR penalty depends upon whether the taxpayer’s violation was willful or non-willful. What is willfulness in the FBAR context?  The general consensus developed in the courts is that the term, ‘willful’ “denotes that which is intentional, or knowing, or voluntary, as distinguished from accidental, and that it is employed to characterize conduct marked by careless disregard whether or not one has the right so to act.”            Wehr v. Burroughs Corp., 619 F.2d 276, 281 (3d Cir. 1980).  A taxpayer has willfully violated 31 U.S.C. Sec. 5314 when they knowingly or recklessly fails to file a FBAR.  A person commits a reckless violation of the FBAR statute by engaging in conduct that violates an objective standard:  action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known.  The Third Circuit Court of Appeals in Bedrosian v. U.S., 2018 (3rd Cir. 2018) that

 

This holding is in line with other courts that have addressed civil FBAR penalties, see, e.g. United States v. Williams, 489 F. App’x 655, 658 (4th Cir. 2012) as well as our prior cases addressing civil penalties assessed by the IRS under the tax laws, see e.g., United States v. Carrigan, 31 F. #d 130, 134 (3d Cir. 1994). 

 

In Kimble v. U.S., 2018 (Fed, Cl. 2018), the court ruled that the taxpayer recklessly disregarded her duty to report foreign accounts because she failed to review her tax returns for accuracy and falsely represented in her tax return that she did not have any foreign bank accounts.  Note that Schedule B of Form 1040 at line 7(a) specifically asks taxpayer’s whether or not they have any foreign bank accounts. The question format is ‘yes or no’, and if it is answered ‘yes’, it leads to a series of additional inquiries with respect to the foreign bank accounts.

 

The civil penalties for a FBAR violation

 

The civil penalties for a FBAR violation are codified in 31 U.S.C. Sec. 5321(a)(5).  The maximum penalty for a non-willful violation is $10,000 per occurrence.  The maximum penalty for a willful violation of the FBAR statute is the greater of $100,000 or 50% of the balance in the unreported foreign account at the time of the violation.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432