FBAR Case Law: A Cautionary Tale About Not Reporting Offshore Accounts To the IRS

Mar 14, 2019

What happens if you don't submit FBAr paperworkGather round ye taxpayers with offshore banking and investment accounts! Here’s a cautionary tale about not submitting a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

FBAR Case Study: The Teacher with a Swiss Bank Account

This story starts in 1999. A stateside teacher, whom we’ll call “Norma Jean,” opened a Swiss bank account. In 2007, she didn’t report any foreign accounts on her U.S. tax return. In 2008, the Swiss firm notified foreign account holders of its decision to halt offshore operations. It also announced plans to cooperate with U.S. authorities to identify potential bad actors. At that point, Norma Jean moved her money elsewhere, and according to authorities she never inquired about reporting requirements — a small detail which will prove crucial.

In 2009, the United States government launched the Offshore Voluntary Disclosure Program. Meant to help people with foreign accounts clear up past reporting oversights without fear of criminal prosecution, the OVDP was Norma Jean’s chance to come clean. Instead, she amended her 2003 through 2008 tax returns, via her Swiss accountant, and never alerted U.S. authorities as required by law.

Norma Jean didn’t hear anything for several years. Then, in 2013, the IRS slapped her with an $803,000 fine, which amounted to 50 percent of the unreported balance. She paid it, sued for a refund, but ultimately lost.

FBAR Case Study: Three Takeaways for Every U.S. Taxpayer with an Overseas Account

Norma Jean’s story is typical and should serve as a cautionary tale to anyone with offshore accounts. So let’s look at the three main takeaways from her case.

FBAR Rules: You Can Lose Up To 50% of Unreported Accounts

Failing to report foreign accounts can cost you dearly. In Norma Jean’s case, she’s out nearly a million dollars. Unfortunately for her, if she had just come forward on her own, the damage would likely have been significantly less.

Self-reporting, with the help of an FBAR attorney, is the best way to go and will save you money.

FBAR Rules: Willful Ignorance Doesn’t Cut It

The Court of Federal Claims ruled that Norma Jean’s actions amounted to “reckless disregard for the law” because she failed to learn about her FBAR obligations. To state it bluntly: The court ruled that choosing to remain ignorant about your foreign account reporting responsibilities isn’t a viable excuse. In Norma Jean’s case, the court explained: “Simply not reading the return does not shield [her] from the implication of its contents.”

FBAR Rules: Quiet Disclosures Can Land You in a Pit of Trouble

Over the past several years, authorities have entered into account-sharing agreements with dozens of countries. Other governments hand over information about U.S. taxpayers with accounts in their respective countries. And in most cases, the U.S. reciprocates. To put it another way: Cross-border accounting information is improving, and authorities are much more likely to pinpoint people who have shirked reporting requirements. Get ahead of the bureaucracy and self-disclose. It will save you big in the long run.

The deadline for 2018 FBAR reporting is April 15. However, extensions can be granted until October if you submit the proper paperwork.

Connect With An FBAR Attorney

The Gordon Law Group has been guiding businesses and individuals through the FBAR process for over a decade. We know all the ins-and-outs and have built relationships that continuously prove beneficial to our clients. If you have a foreign account that was worth more than $10,000 at any point during the calendar year, you must report it to Uncle Sam. If you haven’t, get in touch. We’ll help you get in line and structure the best resolution possible.

    Contact Gordon Law Group

    Submit your information to schedule a confidential consultation

    Recommended Reading: