5 Reasons Why You Need an FBAR Lawyer
We serve as external Counsel on all types of IRS Tax Audit defense and compliance matters.Steven Dillon – Former IRS Tax Attorney and Local Counsel
Individual and corporate U.S. taxpayers with offshore accounts need to comply with the federal FBAR requirements. Non-compliance can have severe consequences, so it is important to hire an experienced FBAR lawyer to represent you.
Under federal law, individual and corporate U.S. taxpayers have an obligation to report their qualifying offshore accounts to the U.S. Treasury Department. The means for reporting offshore accounts is through the filing of FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
For taxpayers who have an obligation to file FBARs, failure to file can have severe consequences. Failing to maintain adequate account records and submitting false FBARs can have severe consequences as well. Depending on the specific circumstances involved, these consequences could include criminal sanctions under the Bank Secrecy Act and other federal statutes. As a result, compliance needs to be a priority, and individuals and companies must rely on the advice and representation of experienced federal tax counsel to make sure that they meet their FBAR filing and recordkeeping obligations.
Here are Five Reasons to Hire an FBAR Lawyer if You Own Offshore Accounts
Are you (or your company) subject to the Bank Secrecy Act’s FBAR filing requirements? If so, here are five reasons why you need an FBAR lawyer:
1. Individuals and Companies Can Face Prosecution for FBAR Violations for Up To Six Years
Under federal law, the Internal Revenue Service (IRS) can investigate FBAR violations for up to six years. As a result, if you have failed to file an FBAR, failed to maintain records of your offshore account, or filed a false FBAR in any of the past six years, you could be at risk for prosecution. Each individual violation can be prosecuted as a separate offense, meaning that you could be at risk for facing multiple charges under the Bank Secrecy Act and other federal statutes.
When the IRS conducts an audit (or the IRS’s Criminal Investigations department (IRS CI) conducts an investigation), having documentation of compliance can be crucial to resolving the inquiry favorably. If you do not have documentation of compliance (i.e. if you cannot substantiate the contents of your FBARs), you will be facing an uphill battle. An FBAR lawyer can help you maintain FBAR compliance and documentation of FBAR compliance, and can represent you in the event of an IRS audit or IRS CI investigation if necessary.
2. The Penalties for FBAR Violations Can Be Substantial
If you are subject to the Bank Secrecy Act’s FBAR filing requirements and you do not file an FBAR, the consequences can be substantial. The Bank Secrecy Act includes provision for both civil and criminal enforcement, and certain violations (i.e. filing a false FBAR) can lead to prosecution under other federal criminal statutes as well.
Depending on the specific allegations put forth by the IRS or IRS CI, the penalties for FBAR violations can include:
- Civil fines in excess of $10,000 for non-willful violations
- Civil fines in excess of $100,000 for willful violations
- Criminal fines of up to $100,000 or $500,000 for willful violations (depending on the specific violation)
- Federal incarceration for a term of up to five or 10 years for willful violations (depending on the specific violation)
When facing allegations of Bank Secrecy Act violations from the IRS or IRS CI, it is imperative to have an experienced FBAR lawyer on your side. While there are defense strategies available, executing these strategies effectively requires a comprehensive understanding of the law and the auditing or investigative procedures involved.
3. Failure To File is Not the Only FBAR Mistake That Can Get You Into Trouble
As we have alluded to already, failing to file an FBAR is not the only mistake that can get you into trouble with the IRS or IRS CI. FBAR violations fall into three main categories:
- Failure to File – U.S. taxpayers who own offshore accounts with an “aggregate maximum value” of $10,000 at any time during the year must file an FBAR with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
- Failure to Retain Account Records – Willfully failing to retain records of an offshore account is subject to the same penalties as willfully failing to file an FBAR.
- Filing a False FBAR – Filing a false FBAR is considered a form of federal government fraud and is prosecutable as a criminal offense under 18 U.S.C. Section 1001.
Avoiding these violations—and defending against allegations of these violations—requires experienced FBAR counsel. If you or your company has offshore accounts, you cannot afford to take chances. Working with an experienced FBAR lawyer will allow you to confidently maintain compliance, and it will ensure that you are prepared to demonstrate your compliance in the event of an IRS inquiry.
4. If You Have Failed to File an FBAR or Submitted a False FBAR, Being Proactive Could Significantly Mitigate Your Risk
If you have failed to file an FBAR or submitted a false FBAR – whether knowingly or unknowingly – addressing your mistake proactively could drastically reduce the risks you are facing. The IRS encourages taxpayers to voluntarily disclose their mistakes, and it rewards voluntary disclosure with reduced penalties (voluntarily disclosing a mistake generally does not afford the ability to avoid penalties entirely, although it can in some cases).
Whether you are eligible to utilize the IRS’s Voluntary Disclosure Practice or you need to remedy an FBAR violation through other means, you will need to make your next steps carefully. For example, if you make a “voluntary disclosure” while ineligible for the IRS’s Voluntary Disclosure Practice, the IRS could simply use the information you provide to support criminal charges.
5. Filing an FBAR May Not Be Your Only Federal Filing Obligation Pertaining to Your Offshore Accounts
If you have offshore accounts, filing an FBAR might not be your only federal filing obligation. In particular, the Foreign Account Tax Compliance Act (FATCA) requires the disclosure of offshore assets to the IRS using Form 8938. Filing an FBAR does not satisfy your obligations under FATCA, and FATCA violations can lead to penalties on par with those imposed for FBAR violations under the Bank Secrecy Act.
FAQs: What Do U.S. Citizens, Residents, and Businesses Need to Know about FBAR Compliance?
Q: How can you determine if you need to file an FBAR?
The FBAR filing requirements apply to the substantial majority of U.S. taxpayers who have offshore accounts (or “foreign financial accounts” in the terminology of the Bank Secrecy Act). If you are a U.S. citizen or resident, or if you own or operate a U.S.-based company, and if you have one or more foreign financial accounts with a “maximum aggregate value” of $10,000 at any time during the year, then you are required to file an FBAR. Our Ultimate Guide to IRS FBAR discusses the filing requirements in more detail.
Q: What are your options if you have failed to file an FBAR in the past six years?
If you have failed to file an FBAR in any of the past six years, then you are at risk for being audited by the IRS. You could also potentially face a criminal investigation by IRS CI. If you are not yet facing IRS scrutiny, you may be able to correct your mistake by making a “voluntary disclosure” under the IRS’s Voluntary Disclosure Practice.
However, making a voluntary disclosure carries risks, and not all taxpayers qualify. A lawyer who is experienced in FBAR compliance can help you assess your options and choose a path forward.
Q: If you haven’t filed an FBAR, should you make a voluntary disclosure?
Maybe. There are several eligibility criteria for utilizing the IRS’s Voluntary Disclosure Practice, two of which are: (i) having committed a criminal FBAR violation; and, (ii) not currently being the subject of an IRS audit or IRS CI investigation. If you are not eligible, then any information you submit may simply be used against you. Additionally, you must agree to pay certain penalties when submitting a voluntary disclosure, so you will want to make sure that you are in fact delinquent (and do not have other options available) before voluntarily disclosing a potential FBAR violation. The IRS’s Streamlined Filing Compliance Procedures also offers an option for mitigating the consequences of failing to timely file an accurate FBAR, although there are limitations and risks with this program as well.
Q: What should you do if you have been contacted by the IRS regarding an offshore account?
If you have been contacted by the IRS (or IRS CI) regarding one or more of your (or your company’s) offshore accounts, it will be important for you to engage an experienced FBAR lawyer promptly. At this point, you are no longer eligible to make a voluntary disclosure, and you will need to work with your lawyer to determine the most-appropriate course of action.
Discuss Your FBAR Compliance or Defense Needs with a Federal Tax Lawyer at Oberheiden P.C.
Whether you have questions about FBAR compliance or you have been contacted by the IRS regarding your offshore accounts, it is important that you speak with an experienced federal tax lawyer promptly. If you would like to arrange a free and confidential consultation with a lawyer at Oberheiden P.C., please call 888-680-1745 or tell us how we can help online today.