In recent years, the IRS and Justice Department have dramatically increased enforcement efforts related to unreported foreign accounts. Scores of taxpayers have been indicted. There have been several high profile criminal actions against some banks and bankers as well.
U.S. taxpayers with an aggregate of $10,000 or more in offshore bank accounts and other specified financial assets must report those assets each year. Reporting is done both on Schedule B of one’s income tax return and on a Report of Foreign Bank and Financial Accounts – FBAR for short.
The IRS operates under very strict disclosure guidelines. Section 6103 of the Internal Revenue Code identifies limited ways in which information from tax forms can be released for other purposes. These include child support enforcement, eligibility for certain assistance programs and law enforcement purposes. The latter have many procedural safeguards including the necessity of a court order and or written approval of the Justice Department. As a practical matter, tax return information is rarely disclosed to law enforcement authorities. (There is widespread debate on how often return data is shared with intelligence agencies, as there is little data on such disclosures.)
FBARs are not a tax form, however.
Because FBARs are a Treasury Department form, the strict confidentiality rules of section 6103 do not apply.
As a practical matter, the IRS is the agency charged with FBAR enforcement. Treasury’s FinCEN (Financial Crimes Enforcement Network) can also enforce violations. FinCEN generally concentrates its efforts on money laundering and the use of bank accounts to fund terrorism.
According to the Internal Revenue Manual (the “IRM” is the IRS rulebook), if the IRS is examining FBAR forms in connection with a tax audit or examination, the information on the FBAR is subject to the normal heightened privacy guidelines under section 6103. That is good news for taxpayers.
Both the IRS and FinCEN can initiate FBAR examinations under the Bank Secrecy Act, however. If the sole purpose of an examination is the FBAR itself, the heightened disclosure protections do not apply.
What does all this mean to taxpayers? Unless there is a corresponding tax audit, FBAR information is not protected by the stringent IRS disclosure laws. Both the IRS and Treasury can share the information from FBAR forms with other law enforcement agencies.
This post simply addresses the disclosure and confidentiality protections surrounding FBAR forms. The penalties associated with unfiled FBARs are another matter.
If you have unreported offshore bank accounts and haven’t completed FBARs for two or more years, contact an experienced IRS tax attorney to learn more about your obligations and options.
The Bank Secrecy Act and FBAR filing requirement extends well beyond bank accounts. If you have an offshore brokerage account, hedge fund, precious metals account, annuity or life insurance policy with a cash savings component, you may have an FBAR or FATCA reporting requirement or both.
The FBAR lawyers at Mahany & Ertl help taxpayers worldwide comply with the IRS and Treasury foreign reporting requirements. We have helped many people avoid criminal prosecution, audit and harsh penalties. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The author of this post, attorney Brian Mahany, can also be reached at or by telephone at (414) 704-6731. All inquiries are protected by the attorney-client privilege and kept in strict confidence.