Since 2008 the Federal Government has been cracking down on the offshore (mostly Swiss) bank accounts historically used by many wealthier Americans to avoid disclosure and taxation of income to the Internal Revenue Service (IRS). Though these schemes were longstanding, they were also illegal. The IRS has begun criminally prosecuting the employees of several large off shore banks and, in the process, has obtained account holder data for many of these offshore accounts.
The law requires that taxpayers who file U.S. tax returns must report income from all offshore accounts on Schedule B of their Form 1040 income tax return and disclose the existence of the account on their return. In addition taxpayers with an interest in, or signatory authority over an offshore account may be required to file an IRS Form 8938, Statement of Specified Foreign Financial Assets, or a FinCEN Form 114 Report of Foreign Bank and Financial Accounts (FBAR). Failure to file either form when required can result in the imposition of both civil and criminal tax penalties. Currently, criminal penalties are a maximum of $250,000, five years in prison, or both. See 31 U.S.C. 5322(a).
However, even if one manages to avoid criminal tax penalties, the civil penalties are severe. Willful violations that occurred prior to October 23, 2004 can result in a civil penalties of up to $100,000.00. For violations that occurred after October 22, 2004, a maximum penalty is assessed as the greater of $100,000.00 or 50 percent of the entire balance in the account. While these are the maximum penalties permitted under the statute, it is possible in certain cases for a skilled tax attorney to negotiate a reduced civil penalty or to seek to avoid criminal penalties in favor of a civil resolution.
If you need assistance determining whether you are required to file FBAR disclosures or if the IRS has contacted you for your failure to file FinCEN or FBAR disclosures and you need help, contact us online or call us at 401-324-9344 to make an appointment.