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FBAR Penalties Exceed Value of Offshore Account

Offshore Account Update

Posted on June 20, 2014 |

An 87-year-old Florida man faces FBAR penalties equal to approximately 150 percent of the value of his Swiss bank account. FBAR penalties are assessed when U.S. persons with investments in foreign banks fail to complete and file an annual Report of Foreign Bank And Financial Accounts (Form TD F 90-22.1). 

The Department of Justice and Internal Revenue Service have been cracking down on those who fail to file FBAR penalties in an effort to reduce tax evasion.  Since 2009, more than 70 taxpayers have been charged and faced civil fines.  The Florida man’s case was unusual, however, because the IRS sought to obtain penalties for each of the four years that the man failed to file the required documentation.  While past FBAR penalties have been larger in dollar amounts than this case, the combined penalties assessed for three years of non-filing amount to the largest penalty on a percentage basis. 

Investors with offshore accounts must be aware of the potential for large penalties and should speak with a Washington DC tax law attorney for assistance in understanding their options. 

FBAR Penalties Set New Record

Since 2009, more than 43,000 Americans have joined an IRS amnesty program to avoid prosecution for undeclared offshore accounts.  An estimated $6 billion has been collected as part of this amnesty program, as back taxes and penalties are assessed when investors come forward.  

The Florida man assessed the record penalty told the jury that he tried to join the amnesty program.  He claimed he was unaware of the FBAR requirement when he filed his taxes from 2004 through 2007, and he filed amended returns in 2008.   He did not, however, successfully obtain amnesty and he also did not plead guilty in a civil trial brought in Miami federal court.  

The IRS sought penalties for each of the four years that the man had failed to file the FBAR forms and the jury determined penalties were appropriate for the three years extending from 2004 through 2007.  Penalties are equal to 50 percent of the high account balance for each year the FBAR forms were not filed.  Since there was $1.48 million in the man’s account in 2004, $1.49 million in 2005 and $1.55 million in 2006, combined total penalties equal to 50 percent of the high balance these years resulted in a fine of $2.24 million. This exceeds by 150 percent the value of the Swiss account.  

The penalty is being challenged as a possible violation of the constitutional prohibition against excessive fines, explains your DC tax law attorney at Thorn Law Group. The Florida man made a simple mistake of not being aware of the forms to file, and now faces the loss of his account as well as additional funds. 

The outcome of this case shows the importance of filing required IRS forms, as well as the importance of taking a strategic approach when facing criminal or civil action.  Others who have plead guilty since 2009 have paid penalties equal to 50 percent of the high balance for one year, not three. 

An experienced Washington DC tax law attorney can provide advice and information to those with offshore bank accounts who are concerned about FBAR penalties. Call Thorn Law Group today to learn more about the best approach to take to protect offshore financial accounts: 202-349-4033. 

For a consultation, contact Kevin E. Thorn, Managing Partner, at ket@thornlawgroup.com or (617) 692-2989


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