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People Vs. Anna Sorokin

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Ghislaine Maxwell Juror

Juror who prompted calls for new Ghislaine Maxwell trial turns to lawyer who defended Anna Sorokin.

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FBAR Disclosures and Penalties for Failure to File

Your voluntary disclosure can be done in one of two ways, depending on your thought process. One way is to do it quietly. This entails submitting new or amended tax returns with a check in hopes that they process it and you are never contacted by the Criminal Investigation Division (“CI”). The two names for this are “quite voluntary disclosure” and “soft voluntary disclosure”. The other way is a “noisy voluntary disclosure” in which you arrange to meet with CI to talk about your details meet the terms of the IRS voluntary disclosure policy, and to determine if the IRS has already started investigating of the taxpayer (that’s you) without your knowledge.

How are Persons Penalized for Non-Filing of a Foreign Bank Account Report 90-22.1 (FBAR)?

Penalties for failure to file a Foreign Bank Account Report (FBAR) can be either criminal (jail time), or civil, or for some, both.

These are the possible criminal penalties:

Willful Failure to File an FBAR. As much as $250,000, 5 years in jail or both.
Willful Failure to File an FBAR while violating another “law of the United States” or as part of a pattern of any illegal activity involving more than $1000k in a 12 month period. As much as $500,000, 10 years in jail or both.

In addition to the lofty fines and time behind bars, the willful failure to file an FBAR is a felony which can result in collateral consequences such as:
Losing your right to vote;
Having professional licenses ( like CPAs, attorneys, and doctors) revoked
Losing your right to bear arms;
Losing your job; and
Deportation (for permanent legal residents/green card holder) AFTER you are done serving jail time.

On top of harsh criminal penalties, there are ruinous civil penalties. Civil FBAR penalties are handled in a three-tier system. Any willful violations that happened after October 22, 2004 could get up to the maximum civil penalty as follows:

$100,000, or 50 percent of the balance of the account at the time of the violation, whichever is greater. 31 USC 5321(a)(5). For example, an account balance is $6,000,000, means a max penalty of $3,000,000. This penalty can be imposed again and again for each year the FBAR is not filed. Indeed, it is possible for the maximum FBAR penalty to be several times what the balance in the account is. In a 2014 civil case against 87-year-old Carl Zwerner in Florida, a jury returned a verdict upholding three separate 50% penalties in the environs of $2.2 million.

The IRS put out guidelines in 2015 stating that the maximum amount of the civil FBAR penalty it would seek to enforce would be no more than 100% of the highest balance in the offshore bank accounts. The guidelines also state that in “most cases” the penalty would be limited to 50% of the maximum balance in the foreign bank accounts. Our criminal tax attorneys have speculated that these guidelines may have been issued in response to concerns that some existing penalties could be challenged under the 8th Amendment of the United States Constitution which prohibits “excessive fines.”

If the holder of an offshore financial account can successfully convince the IRS that they did not wilfully neglect to file an FBAR, then the penalties are only to $10,000 per violation. Nonetheless, the IRS imposes a separate violation for every bank account that is not listed on the FBAR. For example, if an offshore bank account holder has 6 separate accounts, FBAR penalties can be apply for multiple years on each of these so that the sum of the penalties can quickly balloon into hundreds of thousands of dollars.

Only if the holder of an offshore account can convince the IRS that they had “reasonable cause” for failing to file their FBAR can penalties get waived. In general, the IRS has been uncompromising on the subject of non-filing and rare is the case where the IRS will concur that a person did have reasonable cause for bot not filing. In appropriate cases, the recourse may be litigation.

Our tax litigation lawyers have experienced two types of cases in which the IRS may be willing to agree to a reasonable cause claim. One of the fact patterns involves the increasingly rare situation where the taxpayer had dutifully informed his tax preparer (a CPA or enrolled agent) that they have foreign financial accounts, but the preparer neglected to do an FBAR for the accounts or otherwise tell the client that one was required.

Another fact pattern is in the case of immigrants for whom English is not their first language and may have misunderstood instructions or recommendations due to poor English communication skills, lack of sophistication in financial matters, or the completion of education outside of the United States.

It is noteworthy that persons who neglected to file an FBAR could be liable for civil penalties based on related conduct. Thus, for example, someone with certain types of foreign assets, including financial accounts, must also file a Form 8938, Statement of Specified Foreign Financial Assets. The failure to file this Form 8938 results in a penalty of $10,000. In circumstances where the IRS requests Form 8938 and the taxpayer continuously neglects to file it, FBAR penalties at the rate of $10,000 per month to a maximum of $50,000 can be added on. For Form 8938 the IRS is not obligated to demonstrate that failure to file was willful, and the only way to get out of this penalty is to demonstrate reasonable cause.

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