[Editor Note: Post updated May 2018]Record breaking fines and massive media attention over unreported foreign bank accounts has raised awareness about offshore reporting requirements and the need to file FBAR forms. An FBAR is a Report of Foreign Bank and Financial Accounts. FBAR forms are generally required when the aggregate amount of a taxpayer’s offshore financial holdings exceeds $10,000.
When taxpayers fail to file FBAR reports, the civil penalties can be huge. Sometimes those penalties can include prison!
With such attention on unreported offshore accounts, never has the time been better than to become an IRS FBAR whistleblower. More on that below.
Penalties for an unreported offshore account can be huge. In recent years, the IRS has been routinely assessing civil penalties of the greater of $100,000 or 50% of the highest historical account balance when they believe the failure to report was willful. In a few cases, taxpayers have been criminally prosecuted as well.
While all this media attention has caused many people to come forward, a few have become too frightened to take action. These folks worry that becoming forward they could lose everything. Others try what the IRS calls a “quiet disclosure” and just file missing FBAR forms and amend their tax returns. Both are bad ideas. If this sounds like you, speak to an experienced tax lawyer immediately.
On January 13th 2015, the IRS issued new guidance for those with missing FBAR filings and unreported offshore accounts. For those that meet the criteria, compliance may be quite easy and painless.
Taxpayers who have properly reported all taxable income but failed to file an FBAR
Taxpayers who properly reported all their taxable income can file the late FBAR forms and attach a statement explaining why the reports were late. The IRS says it will not impose an FBAR penalty if there are no underreported taxes owed and the IRS has not already contacted the taxpayer.
Taxpayers who have delinquent information returns but owe no tax
A taxpayer that has reported all their taxable income and properly paid tax but simply failed to file an informational return should file the missing return and a letter of explanation. The IRS has specifically said that it will waive penalties for missing Form 5471 (Controlled Foreign Corporations) and Form 3520 (Foreign Trust Return) if there was no underreported tax and the IRS has not already contacted the taxpayer.
Non-resident U.S. taxpayers with delinquent returns and low risk factors
The IRS maintains a streamlined filing program for certain taxpayers they view as “low risk.” Generally if the total unreported tax obligation is $1500 or less, those who qualify can obtain a significant break on their penalties. Unfortunately, this program is geared to folks living outside the United States such as green card holders, American expats and dual nationals. If you reside in the U.S, you probably do not qualify.
All others – OVDP and Opt Out Options
There are options for all those that have not properly filed FBAR forms and who haven’t paid taxes on their offshore income. The primary vehicle is the Offshore Voluntary Disclosure Program or OVDP. The penalties in this so-called amnesty program can be significant but the program offers certainty and avoids possible criminal prosecution.
Generally, taxpayers accepted into the program must submit up to 8 years of amended income tax returns and missing FBAR forms. Those that disagree with the penalty calculations can “opt out” of the problem and go through traditional penalty abatement procedures.
As noted by the IRS, taxpayers should consult with a tax professional to figure out which option best fits. The potential penalties are so large that we recommend always consulting with a tax lawyer.
IRS FBAR Whistleblowers
(Updated May 2018) It’s easy to see that the IRS has made it easy to file FBARs. Although some penalties might be involved, it is better to comply than to ignore the problem. Unfortunately, some very high net worth individuals and companies are deliberately hiding their affairs from the IRS. The Service will pay cash awards to whistleblowers when those efforts to hide involve unreported offshore accounts.
To qualify for an IRS FBAR whistleblower, one must have inside information about the illegal behavior. If your information leads to the IRS assessing and collecting past due taxes, you may be entitled to an award of up to 30% of whatever the government collects from the wrongdoer.
(The largest whistleblower award to date was $102 million! That was paid to a former UBS director who blew the whistle on the banking giant’s practice of helping wealthy Americans evade taxes through Swiss bank accounts.)
Need more information? Visit our IRS offshore whistleblower information page. Want to know if you have a case? Speak to an FBAR whistleblowers lawyer today. For more information contact attorney Brian Mahany online, by email at or by telephone at 202-800-9791. All inquiries are kept strictly confidential and protected by the attorney – client privilege.
MahanyLaw – Proudly Representing IRS and FBAR Whistleblowers