A failure to file an annual Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1) has significant consequences for investors with foreign bank accounts, warn Washington DC IRS lawyers. One recent case illustrated just how severe those consequences can be.
A federal jury in Miami assessed fines in a civil trial equal to 150 percent of the value of the Swiss bank account that had not been reported. The penalties were based on 50 percent of the high value of the account, which is the standard in FBAR cases. However, unlike past civil trials where defendants have pled guilty and been assessed one year of penalties, the IRS sought fines in this case for four years in which the form was not filed. The jury determined that penalties were appropriate for three of the four years, and the total due thus exceeded the account balance.
While the fines are being challenged as possible violations of the constitutional prohibition against excessive fines, the outcome of the case shows the importance of taking a strategic approach to IRS actions. A Washington DC IRS voluntary disclosure lawyer can assist clients in becoming part of an amnesty program or in otherwise taking steps to minimize potential loss that can result from civil litigation or criminal charges.
FBAR Penalties Exceed Value of Account
The record penalties were assessed against an 87-year-old Florida man who told the jury that he was unaware of his obligation to file FBAR forms. The man amended his own tax returns in 2008, because he had not filed the FBAR form from 2004 through 2007.
The value of his account in 2004 was $1.48 million. In 2005, the account value was $149 million and in 2006 the value had reached $1.55 million. With penalties equal to half of the high balance for each of these three years, his fines totaled approximately $2.24 million.
The penalty is not the largest FBAR penalty in terms of dollar amount. The creator of Beanie Babies plush toys pled guilty to having a non-reported Swiss account with a total value of $107 million and paid a penalty of $53.6 million. A Palm Beach, Florida widow was also assessed a $21.6 million FBAR penalty on a $43 million Swiss account. However, it is the largest penalty in terms of the percentage related to the value of the account.
The penalty could perhaps have been avoided if the Florida man had successfully sought amnesty, as he reported attempting to do. More than 43,000 Americans have joined an amnesty program allowing them to report offshore accounts and avoid criminal penalties if they pay back taxes, fines and penalties and report on the bank that helped them hide their money.
An additional 70 Americans have pled guilty to FBAR violations since 2009 and have paid penalties equal to 50 percent of the high account balance for just one year.
A Washington DC IRS lawyer should be consulted for advice on handling IRS actions related to FBAR violations or other failures to comply with income tax laws. Your attorney at Thorn Law Group can explain to you the options available and advise on the most appropriate course of action for your situation. Contact our offices today for a consultation: 202-349-4033.