Federal Jury Assesses 150 Percent Penalty on Swiss Account


Posted on June 18, 2014 |

In an effort to crack down on tax evasion, the Justice Department and Internal Revenue Service require U.S. persons with foreign bank accounts to complete Form TD F 90-22.1. This form is more commonly referred to as FBAR, short for Report of Foreign Bank and Financial Accounts.  A failure to file can result in penalties of 50 percent of the high account balance.

Since 2009, more than 70 taxpayers have been charged with willfully failing to file the FBAR form and have paid penalties.  The mere threat of these penalties has also driven taxpayers into an IRS amnesty program that makes it possible to pay back taxes and penalties without facing FBAR fines provided they disclose which bankers assisted them in hiding their money.  More than 43,000 Americans have sought amnesty. A New Jersey tax attorney can provide assistance in disclosing FBAR violations to the IRS. 

One Florida man should perhaps have taken advantage of these amnesties programs, as he has now been assessed a fine equal to 150 percent of his Swiss account.  A federal jury in Miami indicated that the 87-year-old Florida resident owes civil penalties to the U.S. government of approximately $2.24 million.  This fine is the largest based on the percentage value of the account, although other defendants have paid higher FBAR penalties in terms of the dollar amount owed.

Record FBAR Penalties

The elderly Florida man facing these record setting penalties indicated that he was unaware that he had to file FBARs until 2008.  His tax returns from 2004 through 2007 did not report any income from his Swiss bank accounts.  The original returns also failed to indicate that he had an interest in a foreign account. The accounts were not held in his name.

The man reported the income himself, amending his own returns in 2008.  He also stipulated to the jury that he tried to enter the voluntary disclosure program that had been established by the IRS.  Because his attempt was unsuccessful, the IRS pursued a civil action against him and sought 50 percent of the value of the account for the four years when he failed to make the required disclosures. 

Many other tax payers who had pled guilty in civil cases since 2009 had paid a FBAR penalty of 50 percent of the high account balance for just one year, but in this case the IRS was seeking penalties that would amount to 200 percent of the account value because penalties would be assessed for each return from 2004-2007.

The Miami federal jury determined that it would be appropriate to assess penalties for 2004, 2005, and 2006.  The account was valued at $1.48 million in 2004, $1.49 million in 2005 and $1.55 million in 2006.  His total penalties, considering 50 percent of the high balance each year, would amount to around $2.24 million, which significantly exceeds the high balance in the account.

The record high penalties are currently being challenged because such a large assessment may be a violation of the constitutional prohibition against excessive fines.  Because the Florida man amended his returns on his own, a clear argument can be made that he did not intend to evade the law.  Penalties exceeding the value of the offshore accounts may be inappropriate for simply failing to file four documents.

Other investors who have offshore accounts need to be aware of the potential for such excessive fines and should ensure they speak with an experienced tax attorney for assistance in resolving any cases involving FBAR penalties.  


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