Foreign Bank and Financial Accounts (FBAR) violations can carry immediate financial consequences and cast a long shadow over one’s financial future. It is important that those who are facing such accusations get a basic idea of what they are facing.
The basics of the FBAR and the importance of willfulness
Willfulness is a legal term that involves a voluntary, intentional violation of a known legal duty. If the Internal Revenue Service (IRS) can establish first, that you needed to file a Report of Foreign Bank and Financial Accounts (FBAR) and second, that the failure to file was willful, they can move forward with increased penalties. The taxpayer could also face additional allegations of criminal wrongdoing.
In the context of FBAR, allegations of willfulness can include reckless disregard or willful blindness to the filing requirements.
Impact of Bittner v. United States
It is important to note that the rules guiding reporting requirements and possible penalties are constantly evolving. Recently, the Supreme Court provided some clarity on how the IRS can issue penalties in its holding for the case Bittner v. United States. In this case, the Supreme Court essentially stated that the IRS could not assess penalties on a per-account basis. Anyone facing these types of allegations is wise to have legal counsel review how this could impact your case.
Three long-term consequences of FBAR violations
Although the initial threat of a hefty financial penalty is enough to make anyone’s heart race, severe financial penalties, potentially eclipsing the balance of the foreign account itself, are only part of the potential penalties. Additional consequences can include:
- Criminal penalties. Criminal charges are possible for willful violations and can include imprisonment and further fines.
- Reputational damage. Lasting damage to credit scores and reputational harm, affecting future financial opportunities.
- Increased scrutiny. The IRS and other financial institutions may keep a closer eye on your filings and applications.
Taxpayers can take steps to mitigate the impact. The first, and arguably most important, is to consult with a tax attorney to understand the nuances of the case. The attorneys at Goldburd McCone are experienced in these types of cases and can provide guidance. In some cases, this may include a discussion of the IRS’s Voluntary Disclosure Program. This is particularly true if it seems likely the IRS is looking to make allegations of willful violations. Taxpayers can also consider filing delinquent FBARs promptly and accurately to help limit penalties for non-willful violations.
FBAR violations are not to be taken lightly, as they can trigger a cascade of legal and financial challenges that jeopardize your future well-being. Understanding the severity of these violations, the evolving legal landscape, and the legal options available to you are crucial steps toward safeguarding your financial future. If you are grappling with FBAR concerns, it is imperative to seek knowledgeable legal guidance to navigate the complexities of tax law and mitigate the risks associated with these violations.