US taxpayers have an obligation to pay taxes on their worldwide income. Unfortunately for taxpayers who hold undisclosed offshore accounts with foreign financial institutions (FFIs), failure to report income to the IRS can result in the imposition of devastating civil penalties, and even a criminal conviction. Depending on factors like whether the taxpayer’s conduct was willful and which type of disclosure program the taxpayer is participating in, he or she risks facing tens or hundreds of thousands of dollars in fines, years in prison, and the creation of a lasting criminal record. Even in cases where the taxpayer manages to avoid criminal prosecution, the civil penalties alone can eclipse the holdings in the actual undisclosed account.
The bottom line is that noncompliant taxpayers face extremely serious consequences — and with the IRS implementing increasingly sophisticated and aggressive investigative procedures in conjunction with the Department of Justice, the risk will only continue to intensify. The IRS reports recommending a total of 2,859 cases for prosecution in 2005, compared to nearly 3,500 in 2014.
If you’re concerned about exposure to civil and/or criminal consequences due to noncompliance with IRS reporting requirements, it is critical that you seek legal help from an experienced tax attorney like Robert Hoffman before your disclosure avenues close forever. Robert can help protect your rights, handle your paperwork, and determine which course of action would be in your best legal interests. To begin discussing your situation in a free and completely confidential case evaluation, call Robert today at (800) 897-3915.
Civil Penalties for Failure to File FBAR
If you are required to file an FBAR (Report of Foreign Bank and Financial Accounts) with the Internal Revenue Service, but fail to do so in a timely and accurate manner, the resulting civil penalties will be dramatically influenced by whether your conduct is deemed “willful.” Willful conduct means that you intentionally attempted to evade disclosure of your foreign bank accounts.
If you committed a non-willful violation which was not due to any reasonable cause, you may face a civil penalty of up to $10,000 per violation.
If you committed a willful violation, the penalties can rise to $100,000, or 50% of the foreign account balance at the time the each violation occurred. Ultimately, you could end up owing more money than the accounts in question actually hold.
Additionally, failure to file Form 8938 (Statement of Specified Foreign Financial Assets) will result in a $10,000 penalty, plus another $10,000 per month that the return is delinquent, up to $50,000 per return.
You can avoid facing added penalties imposed by the IRS for not filing delinquent FBARs — provided you properly report the accounts and pay appropriate taxes on your return. You must also not have been previously subject to an examination by IRS investigators for income tax evasion, or for unfiled tax returns during the years for which you wish to submit FBAR filings.
In essence, if the IRS is already pursuing you for undisclosed foreign accounts, you need legal assistance from a licensed tax lawyer to help you limit penalties, as avoiding them on your own is unlikely. Los Angeles FBAR lawyer Robert Hoffman can help minimize your financial liability by negotiating with the IRS on your behalf.
Fines and Sentences for Tax Evasion and Filing False Returns
If a taxpayer does not remedy any delinquencies related to offshore accounts, the federal government may eventually pursue criminal prosecution. Possible criminal charges include:
- Tax Evasion (26 U.S.C §7201)
- Filing a False Return (26 U.S.C. §7206(1))
- Failure to File an Income Tax Return (26 U.S.C. §7203)
A person convicted of tax evasion is subject to a prison term of up to five years, and a fine of up to $250,000.
Filing a false return can subject the filer to a prison term of up to three years, and a fine of up to $250,000.
Finally, failure to file an income tax return can lead to a prison term of up to one year, and a fine of up to $100,000.
Furthermore, willfully failing to file an FBAR and willfully filing a false FBAR are both criminal violations subject to prosecution under 26 U.S.C. §5322. In the event of a conviction, these violations can lead to a prison term of up to 10 years, in addition to criminal penalties of up to $500,000.
By agreeing to enter the Offshore Voluntary Disclosure Program, a taxpayer can avoid criminal prosecution and deal only with civil penalties.
The Offshore Voluntary Disclosure Program and Streamlined OVDP
If you decide to enter the Offshore Voluntary Disclosure Program, the penalty structure changes. Keep in mind that, while the IRS refers to this program as a kind of “amnesty,” that term leads to the false assumption that you can avoid all civil and criminal penalties for your actions, which is untrue. If accepted into the program, you may:
- Pay 20% accuracy-related penalties under IRC §6662(a) on the full amount of your offshore-related underpayments of tax for all years.
- Pay failure-to-file penalties under IRC §6651(a)(1), if applicable.
- Pay failure-to-pay penalties under IRC §6651(a)(2), if applicable.
You may also be required to pay a miscellaneous offshore penalty of 27.5%, up to 50% of the highest aggregate value of your undisclosed foreign accounts during the period in which those accounts remained hidden from the IRS. That means you could lose up to half of all funds stored in those overseas accounts. That’s an incredibly stiff penalty for all the IRS’ references to “amnesty” for taxpayers. Of course, most taxpayers view OVDP participation as a highly preferable alternative to going to prison.
If accepted into the streamlined OVDP option, the only penalty will be a miscellaneous offshore penalty equal to 5% of the foreign financial assets that gave rise to the tax compliance issue. However, taxpayers using the streamlined procedures must be able to certify that their conduct was non-willful.
To arrange for a free and private legal consultation, call tax attorney Robert Hoffman right away at (800) 897-3915 today.