We live in a global world. Some of us travel frequently for work, have family that live abroad, have business interests in other countries, or simply retain accounts in foreign nations to diversify our financial portfolios. Whatever the reason for having these foreign accounts, Uncle Sam does not really care. At the end of the day, he just wants his cut.
It may sound rash, but the Internal Revenue Service (IRS) is focused primarily on the collection of taxes. The agency will push hard to achieve this goal, particularly when it believes a taxpayer is taking steps to avoid their obligations.
How does this work for foreign accounts?
Foreign accounts are a little more complicated when compared to their domestic peers. There are various reporting requirements. One is the Report of Foreign and Financial Accounts (FBAR). The US government usually requires taxpayers file an FBAR when they have a foreign account or financial interest that has a value over $10,000 at any point during the tax year.
Those who do not file and FBAR can face serious penalties. These can involve financial as well as criminal penalties potentially including imprisonment. These claims are generally broken down into one of two categories:
- Non-willful. This essentially means accidental — that the taxpayer made an honest mistake and was unaware of the need to file the FBAR.
- Willful. This is an intentional attempt to avoid tax obligations.
Not surprisingly, the penalties are much more severe if the government can establish a willful violation.
How does the court determine penalties for a violation?
This was a point of contention until recently. The United States Supreme Court provided clarification:
- Non-willful. The court will generally assess penalties on a per-form, as opposed to per account, basis. This is important as each form can include multiple accounts. An account-by-account basis can quickly add up to an enormous fine.
- Willful. The government allows for a per-account basis when the violation is willful. Criminal penalties can also apply that may include up to 5 years imprisonment and $250,000 in fines or, if the government can establish the allegations are part of a pattern of criminal activity, the penalties can increase to 10 years imprisonment and $500,000 in fines.
These accusations are often just the beginning. Those who are facing similar allegations are wise to take the matter seriously as it can snowball into additional claims of tax fraud and other criminal activity. The attorneys at Goldburd McCone are experienced in these affairs and can provide advocacy on your behalf, better ensuring you understand the process and reach a more favorable outcome.