Willful Failure to File a Report of Foreign Bank and Financial Accounts

By:  Coleman Jackson, Attorney, CPA
February 01, 2017

Do you hold a financial account in a foreign country?

United States Persons who hold a financial account in a foreign country with a balance anytime during the calendar year of $10,000 or more must file a Report of Foreign Bank and Financial Accounts (FBAR) report.  This disclosure is currently due on April 15th of each year.  The FBAR disclosure is made on the Financial Crimes Network’s Form 114.  FINCIN Form 114 is filed online on the Financial Crimes Network’s website.  The FBAR is mandated by the Bank Secrecy Act, 31 U.S. C. Sec. 5314, etc.

The Secretary of Treasury is authorized to impose civil monetary penalties when a person fails to file a required FINCIN Form 114.  The civil monetary penalty is capped at $10,000 unless the Secretary (the Internal Revenue Service (IRS)) finds that the person willfully failed to file the FBAR.  If the Secretary finds that the U.S. Person willfully failed to file a required FINCIN Form 114, a willful failure to file penalty can be assessed at the discretion of the Secretary of Treasury.  The maximum penalty imposed by the Secretary of Treasury for willfully failing to file a required FINCIN Form 114 is up to $100,000 or one-half the aggregate value in the account(s) at the time of the violation pursuant to U.S.C. 31 Sec. 5321.

A willful failure to file penalty can be assessed at the discretion of the Secretary of Treasury

What exactly does ‘willful failure to file’ mean as it relates to unfiled or tardy FINCIN Form 114 or FBARs?  First of all, in tax law, the term “willful” does not always actually require intent.  That means that a person does not have to actually ‘intend’ to skip filing a required FBAR.  There is a long line of tax cases where courts all over the country have found that taxpayers willfully failed to comply with tax laws where the courts simply ignored whether the taxpayer actually intended their actions or not.  Reckless failure to educate one-self of tax compliance obligations is sufficient for imposition of the willful failure to file penalty in a FINCIN Form 114 case.  Courts have long ruled in the U.S. Department Treasury’s favor where taxpayer’s “willful blindness” or “closed his eyes to discrepancies” or for that matter “conscious effort to avoid learning about reporting requirements” were at issue.  The question of willfulness is essentially a finding of fact.  See Safeco Ins. Co. of America v Burr, 551 U.S. 47, 57 (2007, and Rykoff v. United States, 40 F.3d 305, 307 (9th Cir. 1994) or United States v Poole, 640 F. 3d 114, 122 (4th Cir. 2011).  Failure to read documents and returns is no defense.  See also Greer v. Commissioner of Internal Revenue, 595 F.3d 338, 347 n 4 (6th Cir. 2010).  The tax return itself has been held by courts to place taxpayers on notice of FBAR requirements.  The court in Mohney said just that; see United States v. Mohney, 949 F. 2d 1397, 1407 (6th Cir. 1991).  Willful failure to file FBARs is a factual issue that the U.S. Treasury has been winning in Courts around the country.  Recently, December 20, 2016, in a U.S. District Court in the Western District of California, it is recorded in that Court’s filings that, Mr. & Mrs. Bohanec found that out the hard way.  The Court entered a judgment in favor of the Unites States of America and against the couple in the amount of $160, 915.75 plus all statutory accruals including interest and penalties plus costs and expenses.

Maybe the cases won by taxpayers are going unreported, maybe they are being settled before trial, or, maybe taxpayer’s wins in the Courts are simply very few where it comes to quivering over failing to file required FINCIN Form 114 (FBARS).  It is worth noting that the Internal Revenue Service has been operating Voluntary Disclosure Programs for several years designed to encourage U.S. Persons with foreign bank and financial accounts to come forward voluntarily rather than risk the possibility and probability of being detected through the Foreign Financial Institution reporting, or FFIs simply complying with the 30% withholding provisions of 26 C.F.R. Sec. 1.1471-2T(a)(1).

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

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