FBAR Frequently Asked Questions
1. What is an FBAR?
Mandatory Foreign Bank Account Reporting (FBAR) was initiated in the 1970’s in an attempt to stop money laundering by criminal elements. The law was gradually expanded so that by the early 2000’s, most persons who had lived overseas were subject to the reporting. If you have accounts of any type with total combined value of more than $10,000, you are probably subject to the reporting requirements of this law. Accounts belonging to another family member (or any person) where you have the ability to access the account will also subject you to FBAR penalties if they are not timely reported.
2. What are the penalties for nonfiling or late filing?
FBAR penalties come in 2 forms: Criminal and Civil.
Criminal penalties include 5 years in prison and a $500,000 fine for each year that an FBAR was not filed.
Civil Penalties may be assessed as willful or nonwillful. Willful does not have the layman’s definition that you would expect. Willful merely means that the law presumes that you should have been aware of the requirement to file the FBAR forms and you did not file. Civil penalties are $100,000 or 50% of the value of the accounts (whichever is higher) for each year that an FBAR was not filed. Nonwillful penalties, often referred to as innocent penalties, are generally imposed on persons who filed timely, complete and accurate income tax returns and did not fail to report ANY of their foreign income on their income tax returns. Nonwillful penalties are $10,000 for each year that a required FBAR form was not filed.
The government has great latitude in deciding how to impose the penalties. Even if you believe that you are an innocent violator, the government may think otherwise.
3. Should I file an FBAR this year?
Yes. You should always file the current year FBAR form, even if the government might discover that you did not file for other previous years. Failing to file an FBAR form is a serious Federal Felony, with possible criminal penalties of 5 years in prison and a $500,000.00 fine for each year that you haven't filed. It would be a mistake to compound your existing violations by not filing for additional years.
4. What should I do about past FBARs that I did not file?
There is no easy answer to this question. For some people, the Streamlined program is the best. For others, the regular OVDI disclosure is the best. For others, filing some or all of the returns in a “Quiet Disclosure” may be the best course. And for some, perhaps nothing should be done except to wait to see if the government discovers your omission. There are risks associated with each of the options, and none of the options are perfect. The answers to these questions require a professional analysis and assessment of how many years are involved, how much money was in the accounts, where were the accounts, was there unreported income from the accounts or from other overseas sources and what is your education level, among other factors. Attorneys or accountants who advise you to take any of the possible courses of action without an in depth analysis of your accounts, income, education and length of residence in the U.S. are not doing you any favors. The risk of something going wrong increases by a hundred times if a full analysis of your situation is not done before any action is taken.
5. Is it true that the formal Offshore Voluntary Disclosure Program has ended?
Yes. The IRS has closed the formal OVDP/OVDI program because the number of applicants fell off sharply. You can still voluntarily disclose your violations, but the consequences are not defined in the same manner as before. If you want to voluntarily disclose your violations, you should get legal advice immediately. Before making any contact with the government on this issue, you should understand the implications and risks of participating in a voluntary disclosure, and no one should ever do so without experienced legal advice.
6. I've been told that I am a perfect candidate for the Streamlined Program. Are there any downsides to applying?
Yes. Many IRS FBAR review groups are now rejecting all applications, and if you are rejected you can be assessed the full civil penalties and be referred for criminal prosecution. Each situation is unique, and the risks of pursuing one course of action over another should be based on a comprehensive analysis, not just a short meeting with your accountant or attorney.
7. How many successful FBAR criminal prosecutions occur each year?
There are roughly 200 successful FBAR prosecutions each year.
8. How does the government choose people to prosecute for FBAR violations?
There are 2 main reasons that you might be chosen to be prosecuted:
1) The government wants a conviction against you for a reason other than the violation of FBAR laws. An example of this is the recent Paul Manafort conviction. Although they had the same evidence years ago, the Justice Department originally decided that Mr. Manafort's violations were not serious enough to prosecute. But now that he worked for the Trump campaign, the government feels that there is leverage in obtaining a conviction on anything at all, in the hopes that Manafort will testify (in the manner the government wants) against Trump in order to obtain leniency in his own sentencing. The government will tell him what they want him to say, and he will decide based on his integrity and fear of prison whether he will testify according to the terms of the bargain.
2) The government wants to make an example out of you. As in tax prosecutions, the purpose of an FBAR prosecution is not to punish the guilty. It is to scare everyone else who has violated the law. They want compliance out of fear. As a result, the government carefully chooses violators who are representative of various populations, and try to publicize the arrest and later the conviction. For example, they will choose one person from Country "X", then they will choose one person from Country "Y." They will often choose less wealthy persons, as there are more of them.
For more information on how FBAR prosecutions are handled, please contact us for a fully confidential consultation, which we offer at a discounted rate. To make an appointment, please use our Contact form or call us at (408) 293-8500.
9. Have there been changes in the way the IRS or FinCen handle FBAR violations after the recent changes to the OVDP program??
Yes. The government has definitely adopted a more serious approach to enforcement and penalties in the past year.
10. Have there been changes in the way the IRS or FinCen handle FBAR violations during the Corona Virus shutdown?
Yes. Government enforcement efforts were substantially reduced during the first few months of the shutdown. However, even though the shutdown continues, the enforcement efforts have now doubled down and in some cases are even more serious than before. Please contact us if you wish to have your specific case analyzed to obtain advice about the risks and the effect of current enforcement efforts in your situation.