A common question that many taxpayers have is whether closing a foreign bank account will help with any FBAR obligations or reporting requirements past or present. Even if an account is open for just one day, there is an FBAR filing requirement if the aggregate value of the account or . For example, if a taxpayer opened an account for just one day in 2012 with a balance of $10,001 and closed the account within the same day in 2012, the taxpayer must file an FBAR for the 2012 tax year by June 30, 2013.
Some taxpayers are under the impression that closing an account will cure any related FBAR issues or obligations. There are several warnings we give to such taxpayers; although an account is closed, the IRS can and does obtain information on past activity and account records. Also upon closing the account, something must be done with the money. Transfers to new accounts are easily traceable and the existence of a new foreign account itself requires reporting and disclosure obligations. Some taxpayers believe they can transfer the money to a United States account and avoid any obligations; on the contrary, a wire transfer into the United States may trigger the Office of Foreign Asset Control (OFAC) to investigate the transfer and see if the transferor had FBAR filing requirements. Other taxpayers have suggested more “creative” means of “bringing the money back into use”. These types of affirmative acts will provide an easy criminal tax case for the government and should be avoided especially since most offshore cases do not constitute a criminal case in their current state.
The closing of foreign accounts without disclosure may be interpreted as an extra step of covering up a wrong doing or additional “bad act” on the part of a taxpayer. It may also help the IRS prove the intent element of a failure to file an FBAR violation. Also if the account has produced income, there is a failure to report income issue ancillary and separate from the failure to file an FBAR. The continued failure to report the income from the account after closing an account is an issue that must be considered.
The 2012 OVDP can help taxpayers avoid prosecution and repatriate their money without constantly worrying about the IRS’s next move to crackdown on the failure to file FBARs. In some cases participation in the 2012 OVDP may not be warranted and alternative strategy may make sense. Taxpayers continuing their non-disclosure and non-compliance are not only risking significant criminal and monetary implications, but their money can be put to better use with legitimate investments and opportunities both locally and abroad.
Vic Abajian, an offshore bank accounts lawyer in Los Angeles, has handled dozens of foreign and international tax compliance matters involving millions of dollars. He is a former IRS Attorney that has been dealing extensively with international tax issues in complex matters.