There are certain types of international tax filings that the United States requires. The biggest one is a 1040 that generates tax revenue but there is also the Foreign Bank Account Report (FBAR), which is filed with the Department of Treasury. There is no tax associated with it, and the purpose is to disclose the existence of any foreign account so that they can properly report its income to the Internal Revenue Service (IRS).
Work with an experienced attorney regarding your obligation to disclose offshore accounts in Washington DC.
There is a lot of discretion at the IRS on how to penalize the failure to file an FBAR. The smallest penalty is merely a warning letter from the IRS that indicates that the taxpayer failed to file timely. If there are other federal crimes, there could be hundreds of thousands of dollars in penalties and up to five years in prison.
Between these two extremes is a lot of discretion among willful and non-willful FBAR violations. Non-willful is a term that is not defined in the Internal Revenue Code but essentially refers to someone who made a good-faith mistake and did not intentionally or recklessly fail to disclose offshore accounts in Washington DC.
There are four mitigation guideline requirements to be considered non-willful:
If the foreign account value in question is under $50,000, the penalty would be $500 per violation, not to exceed $5,000. However, if the account value is between $50,000 and $250,000, the violation is $5,000. If the account value exceeds $250,000, the penalty can go up to $10,000 per violation.
Regarding willful violations, if the amount is under $50,000, the penalty could be the greater of $1,000 or 5% of the aggregated account value. If the account is between $50,000 and $250,000, the penalty is the greater of $5,000 or 10% of value. This can get difficult, as these individuals will often have more than one account, so it moves to a per-account basis.
Between $250,000 and $1,000,000, the penalty is the greater of 10% of the max account value or 50% on the day of the violation. If the account value exceeds $1,000,000, the penalties for willful violation would be on a per-account basis at 50% of the total account balance or up to $100,000.
There are penalties for failing to file other international information forms such as a Form 8938, which is a $10,000-per-year penalty, as well as the failure to disclose a foreign trust on Form 3520, which starts at the penalty of $10,000 but can potentially increase to 35% of the funds distributed to the trust, or 35% of the funds coming from the trust to the recipients.
There is a six-year-statute of limitation for civil penalties for a local taxpayer failing to disclose offshore accounts.
The criminal statute of limitation on FBAR is five years from the date the offense is committed, which means the date in which that FBAR was not filed. FBAR criminal penalties are all under Title 31 of the United States Code, which is the Bank Secrecy Act. A willful failure to file an FBAR is punishable up to 10 years in prison and fines up to $500,000.
When individuals file tax returns, the IRS has three years to audit additional tax related to those returns. If one does not disclose the Form 8938 with their 1040, the three-year statute of limitations period never technically begins, leaving that person open to an audit much further down the road. By entering into one of the voluntary disclosure programs, a Washington DC taxpayer can significantly reduce penalties and reduce the risk of being audited.
Under the Foreign Account Tax Compliance Act (FATCA), the various foreign banks are required to share the existence of U.S. taxpayer accounts and the amount of income with the IRS. If someone does not disclose their foreign account income, the IRS will likely learn this information anyway and implement penalties.
In the past, there were two main types of people who failed to report their foreign accounts: immigrants who might genuinely not realize they had this duty; and those who intentionally put money offshore with the purpose of evading U.S. income tax. That second group will have a much higher risk with the IRS.
Contact a lawyer who could advise you on how to disclose offshore accounts in Washington DC and prevent further penalties.
Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC, Rockville, MD, Bethesda, MD, Vienna, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.
Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.