A federal jury has found an 87 year old man guilty of willfully failing to file FBARs (Foreign Bank and Financial Account Reports) for tax years 2004, 2005, and 2006. The result is a civil penalty of 50% of the entire account balance PER YEAR. This means, the total penalty will roughly equate to 150% of the account balance. This is a landmark and eye-opening case for several reasons. This was the first time the 50% willful penalty has been applied to multiple years in a civil case. Furthermore, it has sometimes been believed that the IRS would pursue elder individuals less vigorously. Possibly the IRS did not pursue criminal charges because of age, but it appears to have had no effect on the civil side. Lastly, many people ask the question about why should they enter the OVDI program and pay 27.5% of the account balance if the FBAR penalty is only $10,000/year. This decision is a loud statement of why one cannot assume only the $10,000/year penalty will apply. If the IRS did not pursue more harsh penalties for the people who did not come forward the Offshore Voluntary Disclosure Program would offer no incentive for taxpayers. As such, the available penalties for the IRS to assess on people who do not comply has to have real teeth in order to push people into the program. With this decision the IRS is making it clear that you are playing with fire if you do not come forward on your own.
If you have unreported foreign bank accounts you should talk with a tax professional immediately. As more countries become FATCA compliant this issue is only going to continue growing. At some point down the road, people with offshore accounts are likely going to have to come to the IRS or let the IRS find them. Based on this decision you may want to choose the first option. If you have questions about your offshore accounts contact us at Hone Maxwell LLP today. We can give you a detailed review of your situation including the risks, costs, and benefits of all available options. As always, you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.