When if Failing to File an FBAR (form 114 - foreign account report) WillFul or Unwillful

The penalty for willfully failing to file the FBAR is the greater of $100,000 or 50% of the account balance at time of violation.  The penalty for a non-willful violation is up to $10,000.  The documents released in late 2014 by the IRS list some of the items that the IRS considers when determining whether an FBAR violation was willful:

Factors supporting a willful FBAR penalty:

• Opened the foreign bank account
• Owner of, or a financial interest in, the foreign account
• Tax non-compliance
• Did not seek advice, or relied upon the advice of a promoter, foreign banker, or other unqualified tax professional.
• Violations persist after notification of FBAR reporting requirements
• Foreign account not disclosed to return preparer
• No business reason for the foreign account
• No family or business connection to the foreign country
• An offshore entity owns the account
• Previously-filed FBARs do not include all foreign accounts
• Illegal income in the foreign account
• Participated in an abusive tax avoidance scheme

Factors not supporting a willful FBAR penalty:

• Inherited the foreign bank account
• Only signature authority over the foreign bank account
• Tax compliance
• Relied upon the advice of a tax return preparer, a CPA, an attorney, or another
  qualified tax professional.
• Full compliance after notification of FBAR reporting requirements
• Foreign account disclosed to return preparer
• Business reason for the foreign account
• Family or business connection to the foreign country
• Person owns the account in his name

This week a district court held that the $10,000 per year penalty was valid and did not result in excessive penalties or denial of due process when the taxpayer had originally marked the Schedule B with a NO stating he had no foreign bank accounts when he actually did and had them for some time.  The amount kept abroad  in foreign banks was approximately $300,000.  The Court apparently felt that marking the box on Schedule B with a NO  was not unwillful.

The FBAR statute does not define what constitutes a separate FBAR "violation."  See 31 U.S. Code § 5321(a)(5).  Therefore,  the IRS could impose multiple FBAR penalties per year.  The documents released by the IRS use the example of an individual who failed to file the FBAR for three years to report two foreign accounts.  The IRS examiner would have the discretion to assert either (i) 6 violations, one per account per year, (ii) 3 violations, one per FBAR, or (iii) one violation for the entire three year period. The document  does state that "assertion of multiple penalties and the assertion of separate penalties for multiple violations with respect to a single FBAR form should only be taken in the most egregious cases." 

IRS CRIMINAL PRIORITIES AND PROSECUTION RATE IN 2014

IRS  2014 Investigative Priorities: Criminal Investigation’s highest priority is to prosecute the following tax crimes:

  Identity Theft Fraud
  Return Preparer Fraud ; Questionable Refund Fraud
  International Tax Fraud
  Fraud Referral Program
  Political/Public Corruption
  Organized Crime Drug Enforcement Task Force (OCDETF)
  Bank Secrecy Act and Suspicious Activity Report (SAR) Review Teams
  Asset Forfeiture
  Voluntary Disclosure Program
  Counterterrorism and Sovereign Citizens FY14 Business Results:

In 2014 there were only 4,297criminal investigations initiated by the IRS and out of this there were only 3,110 criminal convictions..  This is from a total US population of approx 330 million people. Therefore, you have to be a pretty bad person or a special target for the IRS to even bother with seeking criminal prosecution.

If you are one of those pretty bad persons, email us at ddnelson@gmail.com for help.

IRS REPORTING REQUIREMENTS FOR THOSE WITH FOREIGN ASSETS

The Internal Revenue Service  today reminded U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, that they may have a U.S. tax liability and a filing requirement in 2015.

Most People Abroad Need to File

A filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit , that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

The filing deadline is Monday, June 15, 2015, for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, and for those serving in the military outside the U.S. and Puerto Rico, on the regular due date of their tax return. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2014 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 15 or June 15 depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Special Reporting for Foreign Accounts and Assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014 must file with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). It is due to the Treasury Department by June 30, 2015, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

IRS Simplifies Reporting for Canadian Retirement Accounts

The IRS has eliminated a special annual reporting requirement that has long applied to taxpayers who hold interests in either of two popular Canadian retirement plans. This is part of an IRS change announced in October making it easier for taxpayers with these plans to get favorable U.S. tax treatment. As a result, many Americans and Canadians with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) no longer need to file Form 8891 each year reporting details on these plans. This change does not affect any other reporting requirements that may apply, such as FinCEN Form 114 and Form 8938.

Report in U.S. Dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both Form 114 and Form 8938 require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction.  Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

Expatriate Reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2014 must file a dual-status alien return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

For more and help go to www.taxmeless.com.  Email  ddnelson@gmail.com

Michael Bolton sings an Emotional Song to the IRS

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IRS Tax Tip 2015-57: Ways to Pay Your Tax Liability

IRS Tax Tip 2015-57: Ways to Pay Your Tax Liability  Need further expat or international us tax assistance....go to www.taxmeless.com