Stiffer Penalties May Be Coming for Non-Compliant FBAR Taxpayers

 Posted on June 10, 2019 in Taxation Law

If you have foreign bank or financial accounts, you should be aware that there appears to be a change in the way penalties are calculated in instances of an unintentional breach of tax law. The change could mean significantly higher financial penalties for those who are not in compliance.

This change was signaled in an opinion rendered by the U.S. District Court for the Central District of California in the case of United States of America v. Jane Boyd. The court ruled that a breach of the filing obligations of the reports of foreign bank and financial accounts, or FBAR, could incur a penalty of up to $10,000 per foreign financial account.

Previously, under an interim guidance memorandum, after May 12, 2015, regardless of the number of accounts, the penalty for an unintentional breach was only $10,000 each year. This latest ruling means that U.S. taxpayers with more than one foreign financial account have a greater exposure, because they can incur cumulative penalties if they do not strictly comply with FBAR rules.

Who Must File a Report?

According to the IRS, any U.S. person, which includes citizens, residents, corporations, partnerships, limited liability companies, trusts, or estates, must report his/her financial interests in accounts that are located anywhere outside the U.S., so long as the aggregate value an offshore financial account is more than $10,000 during the tax year for which the report is being filed.

In general, any accounts in financial institutions that are located outside the U.S. are considered foreign financial accounts. This includes bank accounts, brokerage accounts, and mutual funds. In determining whether an account is a “foreign financial account” for reporting purposes, it does not matter if the account produced taxable income for that year.

How to File

FBARs are not submitted with your federal tax return. Rather, they should be filed electronically via the Financial Crimes Enforcement Network’s BSA E-Filing System. You may be able to file a paper FBAR or have one filed on your behalf by another person. Both methods require additional forms.

Contact a San Jose Foreign Financial Reporting Tax Attorney

In light of the recent case of United States of America v. Jane Boyd, those subject to FBAR reporting for multiple accounts can no longer afford to not fully understand the reporting requirements made by the IRS, and they may face increased penalties if they fail to meet their reporting obligations. Not understanding the law is not an excuse, as the most recent case on this issue concerned an unintentional breach.

Our qualified San Jose, CA tax law attorney has helped many taxpayers come into compliance with regard to their foreign accounts. Call our office at 408-866-1810 to set up your first meeting and learn how we can help you resolve any tax issues you may face.

Sources:

https://www.courtlistener.com/docket/7107197/united-states-v-jane-boyd/

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar