When United States citizens earn income overseas or hold cash in foreign accounts, the IRS has a vested interest in making sure that these assets are accurately tracked. After all, many individuals each year abuse the tax law in order to evade legitimately owed taxes on foreign holdings. Therefore, it’s crucial that you do your due diligence when it comes to FBAR filings, lest you face an FBAR audit that reveals impropriety — unintentional or otherwise.
First thing’s first: let’s define what an FBAR is, and why the IRS conducts audits of offshore bank accounts. FBAR stands for Foreign Bank Account Report, and has existed since 1970 as part of the IRS’ approach to ensuring that they meet revenue targets by discouraging offshore tax evasion. The actual FBAR itself usually refers to an IRS document called FinCEN Form 114. FinCEN refers to the “Financial Crimes Enforcement Network,” which is actually a government department that’s totally separate from the Internal Revenue Service itself.
So, what is the FBAR reporting threshold? If you possess $10,000 or more in foreign-held assets (regardless of how many accounts the value is spread across), you need to report those assets and pay appropriate tax on them. Failure to do so comes with a range of consequences, some of which can be quite serious… hence the need for qualified FBAR attorneys to guide clients through this delicate process.
If the IRS suspects that you have not filed an FBAR, but that you should; or, if they believe that you have mis-reported information on your FBAR (especially in a willful attempt to evade tax payment), you may find yourself facing an FBAR audit. Offshore tax problems like an FBAR audit are extremely serious and can result in life-changing penalties. If you are involved in an FBAR audit or believe that you may soon be, strongly consider retaining an experienced offshore tax attorney to ensure that you protect yourself.
There is an FBAR filing deadline each year; but don’t worry, as of 2017 this date is extremely easy to remember. Your FBAR filing is due on April 15, the same day as your income tax returns.
The consequences of failing to file an FBAR in the first place (or filling it out incorrectly) depend on one primary factor: whether the IRS believes the mistake was willful or not. As you can imagine, the penalty is significantly more severe if the omissions or discrepancies are judged to have been willfully made.
For citizens facing an FBAR audit, the penalties for willful discrepancies are enormous and possibly life-changing. Because the IRS recognizes the temptation to under-report foreign assets, they’ve incentivized cooperation by making FBAR penalties rather draconian. For example, FBAR penalties can be as high as 50% of the largest account balance per year the assets went unreported. That means that regardless of your past or current income, you’ll be facing massive tax bills that can spiral exponentially out of control, leaving you functionally bankrupt.
Of course, those are just some of the financial consequences of failing to file an FBAR, filing an FBAR improperly, or evading offshore tax obligations. Let’s not forget that the IRS often seeks to make an example of foreign tax evaders via criminal tax charges. While rare, these situations can and do occur, and can result in incredibly serious ramifications including prison time.
If you have offshore assets and you’ve been trying to pretend that your tax missteps will magically go away on their own, you need to eliminate that mindset immediately. The IRS has shown time and again that the way they prefer to operate is based on respectful transparency. If you try to hide your holdings or cut corners in an attempt (or even seemingly in an attempt) to pay less in tax, you not only open yourself up to consequences, you also increase your likelihood of an audit.
The Offshore Voluntary Disclosure Program (OVDP) is an extremely attractive amnesty option for those who would otherwise be in serious trouble for mismanaging their offshore tax requirements. Essentially, the IRS uses OVDP to incentivize taxpayers to come forward and admit their mistakes by offering a lessened penalty. OVDP can be a lifesaver, but it’s critical that it’s handled with care, as filing under OVDP is the moment that you step forward and present yourself to the IRS as an individual with unreported (or under-reported) foreign assets.
If you’re in FBAR trouble; or, if you simply hold foreign assets and you rightfully hold a healthy respect for the delicacy with which these assets need to be reported, it may be in your best interests to retain an FBAR attorney. At Abajian Law, our founding lawyer is a former IRS attorney himself, and understands how to protect and advocate for clients while maintaining the utmost discretion.
Abajian Law can…
Fixing your FBAR mistakes can be a daunting task. If you’ve been avoiding dealing with your offshore tax obligations for any length of time, it’s critical that you take that first step and contact our office to start the process of extricating yourself from your situation. The longer you wait, the more complex and potentially disastrous your situation can be. On the other hand, the IRS has shown to favor taxpayers who come forward with good faith and transparency in FBAR matters. Abajian Law can be your trusted advocate during this process.