You will need to get a tax litigation attorney’s opinion on whether or not you willfully failed to file Foreign Bank Account Reports (FBARs) and report foreign income on your tax return. The answer to this question has several consequences, including the following:
- Non-willful FBAR violations carry a $12,459 penalty per violation, while willful violations result in a penalty that is the greater of $124,588 or 50 percent of the balance in the account at the time of the violation
- Taxpayers who failed to file FBARs non-willfully are eligible for the Streamlined Filing Compliance Procedures, which allow you to amend previous year tax returns for the previous three years, and disclose your unreported foreign bank accounts
- Willful FBAR violators cannot use the Streamlined Procedures, and must instead use the Offshore Voluntary Disclosure Program (OVDP), which requires much higher penalty payments
- The OVDP is the only program that offers “amnesty” from criminal prosecution
If you try to decide for yourself whether or not you willfully violated your foreign account reporting obligations, you could face severe consequences by guessing wrong. The Streamlined Procedures do not offer protection from criminal prosecution, so the IRS and the Department of Justice can come after you for criminal tax fraud if you were a willful violator who chooses the wrong disclosure program. On the other hand, using the OVDP when you were non-willful will result in paying unnecessarily large penalties.
To further complicate matters, you may be able to get your penalties completely waived if you had reasonable cause for failing to file your FBARs. In this case, you don’t need to use either program and can simply submit your delinquent FBARs along with a reasonable cause statement.
However, this is another situation where you should seek guidance from an offshore disclosure attorney because the IRS may disagree with your assertion of reasonable cause, and you are handing them information that could be used to prosecute you. Your attorney will have to look at the value of your accounts, the number of years you failed to file FBARs, your knowledge of financial matters, and many other factors to determine how the IRS will view your submission.
Choosing an offshore disclosure option is a high-stakes matter. Failing to do anything to correct your unreported foreign bank accounts is also a risky move. The best alternative is to select the appropriate offshore disclosure program for your circumstances.
Download our free special report for a more detailed discussion of the Streamlined Procedures.