From the Tax Law Offices of David W. Klasing - Federal Court Affirms $1 Million Foreign Bank Account Penalty
IRVINE, Calif., March 20, 2019 /PRNewswire/ -- A recent case illustrates how large penalties relating to the failure to disclose the existence of foreign bank accounts can become. In U.S. v. Garrity, the federal government imposed a civil penalty of nearly $1 million for failure to reporting the existence of a foreign bank account in Lichtenstein.
The defendants in Garrity argued that the FBAR penalty was unconstitutional under the 8th Amendment to the U.S. Constitution which states that that punishments must be fair, cannot be cruel, and that fines that are extraordinarily large cannot be set. In ruling against the defendants on that argument, Judge Shea stated that the defendants had not established that the penalty was large enough, considering all of the facts and circumstances of the case at hand, that it should be considered excessive.
Foreign Bank Account Reporting (FBAR) laws require that the ownership of, or signature authority over, foreign bank accounts be reported annually. The United States imposes tax on its residents on a worldwide basis. Thus, if a U.S. tax resident earns investment income on a checking, savings, annuity, pension, insurance or brokerage account in a foreign county, he or she may be required to include such income on their U.S. tax return even where taxes were dutifully paid on that income offshore.
The FBAR helps the IRS identify taxpayers that may have offshore sources of taxable income from income generating assets and businesses that may be escaping U.S. taxation. The amount of the penalty for those the government alleges willfully failed to comply can be outright draconian (up to 100% of the offshore value of the foreign financial accounts) including potential criminal prosecution for income tax evasion where offshore sources of income were not reported coupled with willful nonreporting of required foreign information.
If you have a foreign bank account that has gone unreported, it is in your best interest to contact an experienced FBAR attorney. The U.S. has entered into various information sharing agreements with countries around the world. Such agreements have given the U.S. a clear look into foreign financial institutions where Americans are known to be holding offshore funds.
An experienced FBAR attorney can assist in the development of a plan of action that will take into account your specific set of circumstances. A pass on criminal tax and information reporting prosecution where willful tax evasion coupled with willful foreign information non reporting has occurred can be achieved through the replacement for the Offshore Voluntary Disclosure Program that ended in September of 2018. And where negligence rather than willful behavior caused the foreign income and information noncompliance, U.S. taxpayers can get compliant through the exponentially more affordable Expat and Domestic Streamlined Voluntary Disclosure programs.
Be aware that Tax Preparers, EAs and CPAs do not have attorney client privilege and can be forced to testify against you even where they assure you, they will keep your secrets, especially where they prepared the original returns that omitted FBARs or foreign taxable income!
If you are currently under audit and have undisclosed foreign financial accounts coupled with unreported sources of offshore income you are at dire risk of criminal prosecution. See the full version of this article HERE.
Public Contact: Dave Klasing Esq. CPA, [email protected].
SOURCE Tax Law Offices of David W. Klasing, PC
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