Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published October 3, 2022
Overview:
Legal Thoughts is an audiocast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.
This episode of Legal Thoughts is an audiocast where the Attorney, Coleman Jackson is being interviewed by Alexis Brewer, Tax Legal Assistant of Coleman Jackson, P.C. The topic of discussion is “FBAR Filing Requirements & Penalties.”
You can listen to this podcast by clicking here:
If you enjoy this podcast, make sure to stay tuned for more episodes from the taxation, litigation, and immigration Law Firm of Coleman Jackson, P.C. Be sure to subscribe. Visit the taxation, litigation and immigration law firm of Coleman Jackson, P.C. online at www.cjacksonlaw.com.
TRANSCRIPT:
ATTORNEY: Coleman Jackson
LEGAL THOUGHTS
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW
ATTORNEY: Coleman Jackson
Welcome to Legal Thoughts
My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
In addition to myself, we have Alexis Brewer – Tax Legal Assistant, Leiliane Godeiro – Litigation Legal Assistant, Gladys Marcos – Immigration Legal Assistant, and Johanna Powell – Tax Legal Assistant.
On today’s “Legal Thoughts” podcast, our Tax Legal Assistant, Alexis Brewer, will be interviewing me on the important topic of: FBAR filing requirements & penalties.
INTERVIEWER: Alexis Brewer, Tax Legal Assistant
Hi everyone, my name is Alexis Brewer and I am a Tax Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.
Good afternoon, Attorney; thank you for agreeing to sit with me as I interview you with respect to this hot tax topic: “FBAR filing requirements & penalties”.
Let’s jump right in,
Question 1: What does FBAR stand for and why was it created?
Attorney Answer – Question 1:
Good afternoon, Alexis.
Under the Bank Secrecy Act (BSA), the Department of Treasury was given authority to collect information from a US person who have financial interests in or signature authority over foreign bank and financial accounts. FBAR stands for Foreign Bank Account Report.
The FBAR, or FinCEN Form 114, is an annual report that US persons are required to file if they hold foreign accounts which have a balance exceeding $10,000 at any time during the reporting year in a single account or combination of accounts.
The Report of Foreign Bank and Financial Accounts (FBAR) is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is also a tool used by the United States government to identify persons who may be using foreign financial accounts to circumvent United States law. Information contained in FBARs can be used to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.
In April 2003, the Financial Crimes and Enforcement Network (FinCEN) delegated enforcement authority regarding the FBAR to the Internal Revenue Service (IRS). The IRS is now responsible for:
- Investigating possible civil violations;
- Assessing and collecting civil penalties; and
- Issuing administrative rulings.
INTERVIEWER: Alexis Brewer, Tax Legal Assistant
Question 2: What is the FBAR filing requirement?
Attorney Answer – Question 2:
That’s a great question.
Under the Bank Secrecy Act, US persons with a financial interest in a financial account in a foreign country are required to keep record of and report such accounts to the U.S. Department of Treasury.
- “US persons” includes: citizens, residents, corporations, partnerships, limited liability companies, trusts and estates.
A person is treated as having a “financial interest” in any foreign account that the person owns or that is owned by a corporation in which the person has an ownership interest greater than 51%.
FBAR filing is required for foreign financial accounts exceeding $10,000
- This $10,000 threshold amount is an aggregate amount, meaning it is the value of all foreign accounts combined.
- If at ANY TIME DURING THE YEAR the cumulative amount of a person’s foreign accounts is more than $10,000, they must file an FBAR.
INTERVIEWER: Alexis Brewer, Tax Legal Assistant
Question 3: What constitutes an FBAR violation?
Attorney Answer – Question 3:
This has been a big question in the courts, but the IRS and the Fifth Circuit Court of Appeals (the federal court that governs Texas) are in agreement.
An FBAR violation is the failure to report a financial account on the FBAR form. It is not the failure to file an FBAR in general.
This means that you can have several FBAR violations in a single year for each financial account you fail to report or improperly report.
For example, if an U.S. person has 25 separate bank accounts exceeding the reporting threshold of $10,000 in 2022 and they fail to file a Form 114 for this period, the IRS and the 5th Circuit Court of Appeals think that this U.S. person has 25 FBAR violations, not one. FBAR violations are on an account basis not forms basis. Some of the other Circuit Courts have taken a forms view when imposing FBAR penalties. The United States Supreme Court has not ruled on this issue although there is a spit in the circuits which means different FBAR violation penalties can be assessed by the IRS depending upon where the U.S. person resides.
INTERVIEWER: Alexis Brewer, Tax Legal Assistant
Well Attorney, what are the actual penalties for FBAR violations?
Attorney Answer – Question 4:
Anyone who is required to file an FBAR and fail to file a complete and accurate FBAR could be subject to civil monetary penalties, criminal prosecution or both. Civil penalties are inflation adjusted each year; so I am going to skip giving out exact penalty amounts since they would change from year to year. Criminal penalties for knowingly and willfully filing false FBAR reports can be up to $10,000 fine or five years in prison on both. Criminal penalties are based on the facts and circumstances and can even be higher.
FBAR Penalties are authorized in the Bank Secrecy Act; 31 U.S.C. 5321. In addition to the criminal penalties authorized by the law, there are four types of civil monetary penalties for failing to file an FBAR or failing to maintain proper records for the five year required record keeping period as follows:
- Negligent Violation Penalties up to the maximum amount in 31 Code of Federal Regulation 1010.821;
- Pattern of Negligent Activity Penalties up to the maximum amount in 31 Code of Federal Regulation 1010.821;
- Non-Willful Violation up to the maximum amount 31 Code of Federal Regulation 1010.821; and
- Willful Violation Penalties up to the greater of the amount in 31 Code of Federal Regulation 1010.821, or 50% of the amount in the account at the time of the violation
FBAR filers can also be assessed these criminal and monetary penalties for failure to keep records of foreign accounts for five years from the due date of the FBAR, which is April 15 of the following calendar year. The types of information that must be kept for 5 years from the due date of the FBAR are records that show–
- Name in which each foreign account is maintained;
- Foreign bank account number or identifying number;
- Name and address of the foreign financial institution;
- Type of foreign account, such as, savings or checking; and
- Maximum value of each account during the reporting period.
These records must be presented to the IRS for inspection upon request.
INTERVIEWER: Alexis Brewer, Tax Legal Assistant
Attorney, you’ve talked about different penalties depending on if the violation was willful or not.
Question no. 5: What does it mean to “willfully” violate FBAR?
Attorney Answer – Question 5:
The test for willfulness is an objective standard. What I mean is that the standard is not subjective or what the particular taxpayer knew or thought but what an objective taxpayer in similar circumstances would have known or thought.
Courts will consider whether a person knew or should have known about an “unjustifiably high risk of harm.”
In layman’s language, courts consider whether the taxpayer knew or should’ve known that there was a high risk that an accurate FBAR was not being filed and whether (s)he was in a position to find out for certain with little effort or not.
INTERVIEWER: Alexis Brewer, Tax Legal Assistant
You’ve discussed a lot, Attorney.
Question no. 6: In summary, what do listeners need to remember about FBAR filing requirements?
Attorney Answer – Question 6:
Well Alexis our listeners need to remember a few key points:
- If you have any type of foreign bank account or multiple foreign bank accounts with balances which exceeds $10,000 or more at ANY POINT DURING THE CALENDAR YEAR, you MUST CHECK TO SEE WHETHER YOU are subject to FBAR and must report such accounts to the Treasury Department. Foreign Accounts are reported to the Financial Crimes Network on April 15th of the following tax period and currently there is an automatic extension to October 15th. Records used to file an FBAR with FINCen must be kept for five years and be made available for inspection if the IRS request them.
- If you fail to report any foreign account subject to the FBAR filing requirement, you will be subject to civil and possible criminal penalties depending upon whether the violation was willful or non-willful and upon all the facts and circumstances.
- Remember, courts use a very broad definition for willful, and include taxpayers who knew about the FBAR requirement, who should’ve known about the FBAR requirement, and taxpayers who could easily find out about the FBAR requirement.
- Lastly, remember FBAR violations are per-account violations for residents living in Texas, Mississippi and Louisiana (states within the 5th Circuit Court of Appeals jurisdiction). This means that taxpayers will be subject to FBAR penalties for each unreported or misreported account. Some other jurisdictions within the United States are per-form violations.
Interviewer Wrap-Up
Attorney, thank you for siting with me today to explain FBAR, what the filing requirement is, and what the different penalties are for violations.
It seems like the take away here is that taxpayers need to be aware of their foreign accounts and the cumulative balances to avoid FBAR penalties.
To our listeners who want to hear more podcast like this one please subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Take care, everyone! And come back in about two weeks, for more taxation, litigation and immigration Legal Thoughts from Coleman Jackson, P.C., located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.
English callers: 214-599-0431 | Spanish callers: 214-599-0432 |Portuguese callers: 214-272-3100
Attorney Closing Remarks
This is the end of today’s Legal Thoughts!
Thank you all for giving us the opportunity to inform you about: “FBAR filing requirements & penalties”
If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.
Stay tuned! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.
