While the IRS prosecutes record numbers of Americans with unreported offshore tax accounts, federal judges have been giving lighter sentences to those convicted of having failed to file required FBARs. That means while the chances of getting caught increase, the probability of a lengthy prison sentence is on the wane.
U.S. taxpayers owning or having signature authority over foreign bank and financial accounts must report those accounts yearly on a Report of Foreign Bank and Financial Accounts otherwise known as an FBAR. Failing to file FBARs carries the risk of both criminal and civil penalties. Willful violators face 5 years in prison and civil penalties as high as $100,000 or 50% of the highest account balance for each year the account wasn’t reported.
Many people moved money offshore to hide income from the IRS and creditors but others have legitimate reasons for opening a foreign bank account. Dual nationals, foreign born Americans, resident aliens (green card holders) and Americans seeking to diversify risk often open accounts in Switzerland or in their native country. As long as the account is properly reported (Schedule B of the 1040 income tax form and with an FBAR), owning an offshore account is legal.
According to data revealed in the Wall Street Journal, the average prison sentence in a criminal unreported foreign account case is now down to 15 months while the IRS reports bogus tax shelter cases earn an average 30 month stay.
Why the difference?
We believe that judges realize that the civil penalties meted out by the IRS already cause extreme hardship. With 50% penalties routinely be handed out by the IRS, some judges are reluctant to impose a lengthy jail sentence on top of the civil penalties.
Another reason is that the current IRS offshore amnesty program – called the Offshore Voluntary Disclosure Program – gives people a get out of jail and get out of audit card. Both the General Accounting Office (GAO) and the National Taxpayer Advocate have assailed the IRS for its lack of education and outreach. We believe that judges are reluctant to punish people when so many people are completely ignorant of their FBAR filing requirement and others can walk away from criminal liability by simply filing amnesty.
A final reason is that many of the people being prosecuted agree to cooperate. Much of the information used by the IRS in tracking down other violators comes from participants in the amnesty program and from people already under indictment. Prosecutors have targeted lawyers, accountants and bankers involved with offshore transactions because they often can provide lists of client names.
While the average sentence may be going down, 15 moths in the federal pen is still no walk in the park. As noted above, the chances of getting caught increase daily. We believe that the risks of getting caught and the attendant civil and criminal penalties are so high that compliance is always the best option.
If you have unfiled FBARs or undisclosed foreign accounts, speak with a tax lawyer immediately. Time is running out to take advantage of the amnesty program and its alternatives.
The tax lawyers at Mahany & Ertl have helped many businesses and people with a wide variety of foreign reporting problems including unfiled FBARs and the OVDP amnesty program. For more information about unreported offshore accounts, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.