5 Examples of High FBAR Penalties Being Enforced by Courts

5 Examples of High FBAR Penalties Being Enforced by Courts

High FBAR Penalties are Being Enforced by Courts

When it comes to foreign bank and account reporting compliance, the Internal Revenue Service and US government as a whole has made enforcement a key priority. Unfortunately, many taxpayers across the nation have been hit with six and seven-figure fines as a result of either not timely filing their annual FBAR report – or filing late or incomplete forms. While not every person who is out of compliance will get hit with a large penalty, it is important for taxpayers to at least have a baseline understanding of what could happen if the IRS deems them non-compliant with foreign bank and financial account reporting on FinCEN Form 114, and not be led astray by less experienced counsel. Here are five important cases:

Bittner (Non-Willful, $3M)

In Bittner, the appellate court overruled the District Court and issued penalties upwards of $3 million. It is important to note that in this case, despite the staggeringly high FBAR penalty, the taxpayer is still considered a non-willful FBAR case. Bittner is currently at the Supreme Court to determine whether or not the penalty calculation is valid.

US v Solomon (Non-Willful, $200K)

In Solomon, it was determined that the taxpayer was non-willful, but the court affirmed more than $200,000 in FBAR penalties. Aside from the issue of the statute of limitations, a key issue is whether the penalty should be issued per form or per account. The IRS had issued penalties per account, and the court agreed.

US v. Agrawal (Non-Willful and No Reasonable Cause, $50,000 )

In the case of Agarwal, while the penalty is not as high as in some of these other cases, it is important to note that even in a non-willful situation, where the taxpayer is unable to show reasonable cause, the penalties can still be substantial. In other words, if a taxpayer is penalized before having the opportunity to successfully make it through one of the offshore tax amnesty programs they could be looking at significant fines and penalties even when they are non-willful

Hughes (Willful & Non-Willful, $700,000)

Hughes was a very interesting case because there were multiple years of non-compliance and the courts determined that while the taxpayer was willful for some of the years, she was non-willful other years. In general, FBAR compliance penalties can go back about six years, so taxpayers have to take note of the fact that for some of those years, the IRS may find you willful, and for other years you may be found to be non-willful.

Burga (Willful, $100M+)

Burga may currently hold the record for the largest litigated FBAR Penalty issued to date. The US government seeks more than $120 million in penalties against taxpayers for failure to report foreign bank and financial accounts on the FBAR. In this case, taxpayers had many undisclosed accounts across several countries, so this is not a typical case – but illustrates just how far the IRS will go to enforce foreign account noncompliance.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties

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