Many Americans have money in financial accounts overseas in our increasingly global economy. Unfortunately, this also makes it more difficult for federal regulators and investigators to track shady financial activities such as tax evasion or money laundering.
The law states that U.S. persons holding foreign financial interests exceeding $10,000 must disclose these interests and file a Report of Foreign Bank and Financial Accounts (FBAR). Failure to file an FBAR or submitting a false report can lead to severe penalties, including civil and sometimes criminal consequences.
Suppose you must file an FBAR and fail promptly and accurately. In that case, you may face significant consequences, including civil monetary penalties, criminal penalties, or both.
It's essential to take immediate action for U.S. persons who discover they should have filed an FBAR in previous years. The recommended action is to file the overdue FBAR electronically using the BSA E-Filing System.
The FBAR is a crucial reporting requirement for U.S. persons holding foreign bank accounts. The requirement to report is triggered when the total value of an individual's foreign financial assets exceeds the reporting threshold of $10,000 at any time during the calendar year.
Notably, these assets include bank accounts and other financial assets held overseas. Failing to meet these filing obligations can lead to significant penalties.
The civil monetary penalties for failing to comply with FBAR requirements come with various upper limits, but there is no set minimum. The limits are mandated by the Federal Civil Penalties Inflation Adjustment Act of 1990 and its subsequent amendment in 2015.
What is FBAR, and Who Needs to File It?
The FBAR is a disclosure report formally known as FinCEN Form 114. It is required by the Bank Secrecy Act (BSA) of 1970 and is used by the U.S. government to keep track of U.S. persons who hold financial accounts abroad. The primary aim is to prevent tax evasion and money laundering activities involving offshore banking.
Any U.S. person whose aggregate value of foreign financial accounts exceeds $10,000 at any point during the calendar year is required to file an FBAR.
This includes U.S. citizens, residents, entities (such as corporations, partnerships, or limited liability companies), trusts, and estates with an interest in, or authority over, foreign financial accounts.
It's important to note that the requirement is not limited to the account owner; signatories and those with authority over the account must also file.
The civil penalty for a non-willful violation can be over $15,000. It's important to note that criminal penalties do not apply in non-willful failure to file.
This penalty structure applies to all U.S. persons, meaning you must understand and meet FBAR requirements to avoid these substantial fines.
Criminal penalties in FBAR compliance are reserved for the most serious violations, reflecting the gravity of intentional misconduct. The consequences are severe when someone knowingly and willfully submits a false FBAR. Under 18 U.S.C. 1001 and 31 CFR 1010.840(d), the harsh penalties include imprisonment and hefty fines.
Obligations and Filing Process
The FBAR must be filed electronically through the Financial Crimes Enforcement Network's (FinCEN) BSA E-Filing System. Similarly, the deadline for filing taxes is April 15, with an automatic extension to October 15.
What Are the Consequences of Non-Compliance?
Failure to comply with FBAR filing requirements can lead to civil and criminal penalties. The penalties increase substantially if the failure to file is willful or someone willfully and knowingly files an FBAR with incorrect or false information.
Civil Penalties
Civil penalties for not filing an FBAR can be substantial. If the failure to file is deemed non-willful, the penalty can reach up to $12,921 for each violation.
However, if the failure is considered willful, the repercussions become significantly more severe, with penalties potentially reaching the greater of $129,210, or 50% of the amount in the account at the time of the violation, for each violation.
Criminal Penalties
While it's relatively rare that prosecutors file criminal charges for FBAR violations, it can and does happen—especially in cases where the defendant is accused of additional financial crimes or is suspected of a pattern of criminal violations. Prosecutors charge these violations under Title 31 U.S.C. 5322. If you are charged with willful failure to file an FBAR and convicted, the penalties may include:
- Fines of up to $250,000; and
- Imprisonment for up to five years.
If the FBAR violation occurs in conjunction with other criminal activity, such as tax evasion, the maximum penalties effectively double: potential fines can increase to $500,000, and the term of imprisonment can extend to ten years.
What are the Defenses Against FBAR Violations?
The federal government takes FBAR violations seriously, so having a skilled attorney can make a huge difference in your case if criminal charges result. A knowledgeable federal criminal defense attorney can evaluate the specifics of your case and may employ several defenses to mitigate the charges or penalties. These are discussed below.
Lack of Willfulness
One of the primary defenses against the charge of willful failure to file an FBAR is to demonstrate a lack of willful intent.
The IRS must prove that you knowingly and intentionally disregarded your legal duty to file. Proving the absence of willful intent can reduce the severity of penalties or lead to the dismissal of charges. You may, however, still have to pay civil penalties for non-willful violations.
Reasonable Cause
Another potential defense is to argue that there was a reasonable cause for the failure to file and that the failure was not due to willful neglect.
This might include situations where you relied on professional advice, were unaware of the filing requirement despite exercising ordinary business care and prudence, or faced circumstances beyond your control that prevented you from filing.
Statute of Limitations
The statute of limitations may also serve as a defense in some FBAR cases. Generally, the government has six years from the violation date to bring forth civil charges for FBAR non-compliance. For criminal charges, the statute of limitations is typically five years. If the time elapsed exceeds these limits, the charges may be contestable.
Related Content:
