Let This FBAR Case Be a Cautionary Tale To People With Overseas Accounts

Oct 28, 2019

Picture to accompany blog post about FBAR lawsuitThe IRS won a 120-million-dollar FBAR lawsuit. Every person with $10,000 or more in overseas accounts should take two minutes to read this cautionary tale.

FBAR: What is It and Who is Beholden?

Before we jump into the lawsuit, let’s review the FBAR tax protocol.

An acronym for Foreign Bank Account Report, FBAR is a tax disclosure requirement to which certain people with foreign accounts must adhere. FBAR participants must annually submit the online-only FinCEN Form 114.

Who is bound to FBAR rules? Answer: Any United States taxpayer with financial or signatory authority over foreign financials equal to or over $10,000 at any point during the year.

What counts as a foreign financial account?

  • A savings, investment, or checking bank account in another country;
  • Inherited investment and banking accounts in another country;
  • Foreign Investments, including mutual funds, life insurance, et cetera; and
  • Foreign Trusts.

Example of an FBAR Lawsuit: IRS v. Burga

A reasonably straightforward FBAR case recently made its way through the courts, and it serves as an instructive and cautionary tale for taxpayers who have yet to meet FBAR requirements.

Here’s the story:

Back in 2010, a man named Margelus Burga passed away, leaving his wife, Francis, as his estate’s administrator. She also became the owner of 294 bank accounts around the world, including ones in tax shelters like Panama and Switzerland.

Burga, a U.S. taxpayer, however, failed to report the accounts via FinCen Form 114.

FBAR: Willful v. Non-Willful Counts

In the end, the IRS slapped Burga with a nearly $120 million fine. It would’ve been much less if authorities deemed her actions “non-willful” or negligent. Instead, they put Burga in the “willful” category since she was censured in 2017 for failing to file FBAR. At the time, the IRS “assessed civil penalties” of about $53,000,000. According to reports, authorities also suspected Burga of participating in a “false invoicing scheme.”

Since Burga didn’t pay the 2017 fine, her debts bloated to a whopping $119,603,703 on account of collection fees, late fees, and accumulated interest.

What’s the penalty difference between a “willful” and “non-willful” action?

  • Non-willful events come with a max penalty of $10,000 per account, per failure to file instance. (Example: A U.S. taxpayer acquires 10 India-based accounts with $1 million in each from a great aunt. Unaware of the reporting requirement, the inheritor fails to comply with FBAR regulations. In this situation, the IRS can fine up to $100,000. Granted, if the person works with an FBAR lawyer and can prove that they were genuinely unaware of the accounts or reporting requirements, that figure may be much less.)
  • Willful events garner a max penalty of either $100,000 or 50 percent of the non-compliant account balance, per violation. (Example: A U.S. taxpayer wants to evade taxes and squirrels $10 million away into a Swiss bank account. The same person, however, reports a $20,000 savings account in the Cayman Islands, proving they are aware of FBAR requirements. In this scenario, the IRS could extract $5 million for willful non-compliance.)

Also, note that many governments now share banking data. As such, as each year passes, and technology improves, Uncle Sam will likely discover foreign accounts associated with you. The days of “they’ll never find out” are quickly coming to a close.

Why It’s Important to Work with an FBAR Lawyer

If you have unreported offshore accounts, run, don’t walk, to an FBAR tax lawyer. If you disclose before the IRS tracks you down, streamlined, less-expensive options will be available to you.

We’ve worked with countless individuals and businesses on various FBAR legalities. Our team of international tax attorneys knows the ropes and will develop the best possible plan for your situation.

Get in touch today to begin the conversation.

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