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Court finds willful failure to file FBARs for offshore accounts

Florida readers may be interested to know that a federal appeals court decided an important tax case this week. The matter involved a man who held funds in offshore accounts from 1993 to 2000 and, the Internal Revenue Service alleged, willfully failed to file Reports of Foreign Bank and Financial Accounts. The willfulness element of the taxpayer's conduct was especially important because it has been some time since a circuit court has ruled on the issue.

The man had won his case at the district court level, but before a panel of appellate judges, the IRS prevailed. Two of the three judges appeared to find willfulness in the man's 2003 guilty plea to conspiracy and fraud charges related to his offshore accounts. Given that admission, the judges could not credit that he did not know of his obligation to file FBARs.

Willfulness is not a minor element of a tax crime. If the IRS can prove that a taxpayer willfully failed to file an FBAR, the penalties increase markedly in severity. Whereas unintentional failure to file the required documentation subjects a taxpayer to a $10,000 penalty, willful failure merits a $100,000 penalty for each violation or half of the foreign account's value for the year in which an FBAR was not filed. In addition, these financial penalties are exclusive of taxes and interest the person is required to pay to the IRS.

Many people believe this could be a bellwether case as the IRS goes after more U.S. taxpayers who allegedly did not file FBARs. Keeping current with all foreign account reporting is essential. If the IRS does charge someone with omitting an FBAR for a tax year, it is important that taxpayers know their legal rights and options.

Source: Reuters, "Ex-Mobil executive loses offshore tax fight with IRS," Lynnley Browning, July 23, 2012.

• Our firm handles tax matters similar to the one mentioned in this post. If you would like to learn more about our practice, please visit our Miami FBAR page.

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