While many full service firms say they offer a full array of tax services, few concentrate in offshore compliance. In today’s new economy, it’s common to do business in foreign countries. Unfortunately, accounting firms and lawyers have not always kept pace with their clients. We have.
Mahany & Ertl was recently selected by the CPAmerica organization of accounting firms to be their sole source legal services provider for offshore accounting and reporting issues including the new FATCA legislation being implemented in 2013. Finomial, the leading provider of compliance services to the offshore hedge fund industry, has selected us to be their legal services partner for their offshore clients.
While other law firms struggle to get up to speed (and bill you while they learn), we can get you the answers you need, when you need.
Do I Need an FBAR Lawyer?
“Do I need an FBAR lawyer” is a question we are frequently asked. In many cases the answer is “no.” Millions of Americans file FBARs each year without any professional assistance or with the help of a tax preparer or expat tax service. If you are not delinquent on your required filings, an attorney is rarely needed.
To understand when to call an FBAR lawyer versus handling things on your own, some background is necessary.
An FBAR (the acronym for Report of Foreign Bank and Financial Accounts) is U.S. Treasury Department form required by the Financial Crimes Enforcement Network. Although collected by the IRS, the FBAR has its roots in Treasury’s anti-money laundering statutes.
FBARs must be filed annually if a taxpayer has a financial interest in one or more foreign financial accounts when the sum total of that account or accounts exceeds $10,000 (US). That means two accounts, each with $6000 would have to reported since the government looks to the aggregate balance. The FBAR reporting requirement is triggered even if the account or accounts exceeded $10,000 for just one day during the year.
FBARs are required of individuals, businesses and green card holders.
Reporting is also usually required by anyone that has signature authority over the account, regardless if the money in the account belongs to them or not. There are some exceptions for businesses. If you are unsure whether an account must be reported, consider contacting an experienced FBAR attorney.
Many people think of Swiss bank accounts when they hear the term “foreign financial accounts.” While Swiss banks have certainly been a focus of the Justice Department, any account opened outside the United States may have to be reported. The term “account” includes bank accounts, CD’s, brokerage accounts, precious metal accounts and certain annuity or life insurance products with a savings component. Again, if you are unsure, consider speaking with an FBAR attorney.
FBARs are due by the following June 30th of each year. Presently, qualifying accounts held in 2013 must be reported by June 30th of 2014. These accounts must be reported both on the FBAR form (which is now electronic) and one’s tax returns.
Failure to comply with the FBAR reporting and record keeping requirements can result in severe civil and criminal penalties.
Civil penalties: The most severe penalties are reserved for “willful” violations. The willful penalty is up to the greater of $100,000 or 50% of the balance in the account at the time of the violation. These penalties are per account and in rare cases are imposed for each year an account isn’t properly reported. The IRS has the burden to show willfulness although they can rely on circumstantial evidence.
Indicators of willfulness include:
- Nominee ownership of foreign accounts (an account not in the taxpayer’s name but controlled by the taxpayer).
- Previously filed FBAR forms (demonstrates knowledge of the law).
- Failing to check the foreign account box on schedule B of one’s individual tax return.
- Promotional material from the foreign bank.
- A drop in reported income after the establishment of the foreign account.
- Debit cards tied to a foreign account.
If the IRS deems the violation to be non-willful, the penalty amount is up to $10,000 and once again can be imposed for each account and each year. Often, however, the IRS will only impose a single $10,000 penalty.
In some cases, there may be no penalties. The most frequent example of this occurs when the taxpayer reports all income such as interest or dividends from a foreign account but fails to report the account itself.
Criminal penalties: Generally criminal penalties can include a fine of up to $250,000 or imprisonment of up to five years, or both. Often the IRS will charge related violations such as filing a false tax return (felony) and tax evasion (felony) in connection with missing FBARs. The good news is that criminal prosecutions are rare.
With penalties this high, anyone that has failed to timely file one or more years of FBARs should speak with an FBAR lawyer.
How Can an FBAR Lawyer Help?
There are many tax lawyers in the United States but few that concentrate in offshore reporting requirements. In recent years, the rules have been changing frequently. Having a tax attorney that is well versed in this complex and ever changing area of law is crucial.
The IRS has several amnesty options available to taxpayers. These eliminate the prospect of a criminal prosecution and audit but still involve penalties. Often taxpayers who can demonstrate their actions were non-willful will do better with a traditional disclosure or even opting out of an existing amnesty. There are risks, however. Again, with penalties so high, having a great lawyer experienced with FBARs and foreign reporting skills is crucial.
Have more questions? Give us a call. We have helped taxpayers across the United States and the world with FBAR questions and amnesty filings.
Our main office number is (414) 223-0464.
Want to know more about foreign reporting? Enjoy our complementary presentations:
Foreign Reporting 101
Foreign Bank Account Reporting (FBAR) and the Foreign Account Tax Compliance Act (FACTA)
FBAR or FATCA by experienced FBAR attorney Brian Mahany