Dealing With Your First FBAR FilingsOffshore Account Update
Posted in on July 26, 2016
If you are a U.S.-affiliated person and you have accounts offshore with funds totaling $10,000 in aggregate at any point over the year, you are supposed to file an annual Report of Foreign Bank and Financial Account (FBAR). June 30, 2016 was the deadline for filing this year. Many taxpayers have discovered this requirement only recently, which left taxpayers who wanted to comply with the law wondering what their best options were.
If you have not filed an FBAR in the past but you know now that you are supposed to file one, you had to choose: should you file your form by June 30 and let the IRS know about your account? This choice is not an easy one.
If you do file, you could prompt the IRS to become curious about where this account suddenly came from and whether you may have failed to fulfill your tax obligations in the past. If you don’t file, then you’re out of compliance with the law for another year and could face serious financial and possibly even criminal consequences.
Deciding how to come into compliance with FBAR filing requirements is complicated. Taxpayers grappling with this tough decision should consult with a New Jersey criminal tax lawyer to get help deciding on the best course of action.
Should You File?
The Government Accountability Office (GAO) recently published an in-depth report on offshore tax evasion. In this report, GAO noted the number of first FBAR filings had dramatically increased.
GAO suggested that the IRS should look closely at these filings to see if any of the taxpayers who suddenly are reporting accounts may have held those accounts in recent years. If so, and FBARs weren’t filed, the IRS can go after the taxpayers and impose penalties. There are financial consequences for both willful violations and non-willful violations associated with failing to file required FBARs.
Taxpayers who have only recently learned of their duty to file FBARs are concerned about exactly this type of crackdown. Even if you want to come into compliance with IRS rules and file your FBARs every year going forward, you don’t want to face the draconian penalties that could result from the IRS finding out you had accounts offshore in the past that you did not declare.
Some taxpayers are taking a chance and are simply filing their FBARs for the first time, and are even going back and amending a few past returns. This has been dubbed a quiet disclosure because the taxpayer is admitted to the IRS that it had accounts it didn’t tell them about in the past.
If the IRS catches this, and it likely will if it follows GAO’s recommendation, then the IRS is going to assess penalties for past years in which FBARs weren’t filed. In some cases, people who did not file FBARs were actually fined more than the value of the offshore accounts.
There are other possible alternatives to quiet disclosure, such as participation in OVDP, and a criminal tax attorney can explain these other options. You should consult with attorney Kevin Thorn before you act so you can find out your best course of action.