A Florida man has been found guilty of failing to file required FBARs (Report of Foreign Bank and Financial Accounts). The penalty for failing to file the FBAR is 50% of the value of the foreign asset or account in the year when the form should have been filed. In this case, the IRS originally sought such a 50% penalty for four years, 2004-2007. That is, a 50% penalty on each year, which would have been 200% in total, but the jury found the taxpayer did not owe a penalty for 2007, thus the 150% figure.
The IRS seeking penalties on multiple years is unusual and hasn’t been their usual course in these sorts of cases. There remains uncertainty as to whether the 150% penalty is constitutional or if it constitutes an excessive fine. The argument, more or less, is that each failure to file an FBAR is a separate offense with its own penalty. The question will be decided by a U.S. District Court Judge.
Although the 150% penalty is the largest ever assessed in an FBAR case, the total penalties of $2.24 million fall well short of the record in terms of dollars. Previous FBAR cases have resulted in penalties of over $50 million. More than 70 taxpayers have been charged since 2009 and that number will only rise as the IRS, empowered by FATCA information sharing agreements and settlements like that reached last month with Credit Suisse, continues to bring legal action against tax evaders.
In the same period, since 2009, more than 43,000 Americans have taken advantage of the IRS Offshore Voluntary Disclosure Program (OVDP). In exchange for coming clean voluntarily about their previously undisclosed offshore accounts and assets, taxpayers avoid criminal prosecution and pay reduced fines. Currently the fines are 27.5% (as opposed to the 50% otherwise applicable) and are usually applied only to the one year with the highest aggregate balance of undisclosed accounts or assets, rather than on each year in which those assets were not disclosed. Penalties can be even lower depending on circumstances.
Although there is no deadline for entering the OVDP and the program is slated to continue indefinitely, there are two important caveats. The IRS has the authority to change the terms of the program, increasing the penalties for example, at their discretion. And if the IRS has already begun investigation into a taxpayer, the taxpayer is no longer eligible for the OVDP.
Horowitz Law Offices has represented numerous clients in connection with the OVDP since its inception. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org