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FBAR and Jail. What do they have in common?

By ZM Ishmurzina

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Summary: The history of the FBAR goes back to the Bank Secrecy Act of 1970 and Title 31 of the US Tax Code. However, only recently the IRS has started to enforce the rules and even prosecute individuals.

Expat Tax - FBAR and Jail. What do they have in common?

Americans living abroad are overwhelmed by the increasing complexity of US tax returns. FBAR or the Report of Foreign Bank and Financial Accounts has been a hot topic for several years.

The history of the FBAR goes back to the Bank Secrecy Act of 1970 and Title 31 of the US Tax Code. However, only recently the IRS has started to enforce the rules and even prosecute individuals.

This is the latest FBAR case.

Christopher B. of California pleaded guilty to a willful failure to file the FBAR. He is scheduled to be sentenced on July 8, 2013.

What led him to jail? Some poor advice and his desire to hide income.

Chris B. worked as a consultant. His business was booming. One day he approached a vice president of banking at UBS in San Francisco who advised him to set up an account in Switzerland and shelter a part of his consulting income from the IRS. Chris B. deposited more than $600,000 in his UBS account from 2001 to 2005. Chris did not report this income to the IRS. Moreover, he lavishly spent this money to buy a car, to travel in Europe and to pay for Eurocard.

Chris B. did not declare this income on his tax returns. He did not disclose the existence of his account to his CPA either. The total tax harm is estimated at $270,757. Chris B. faces not only the penalty in the amount up to $250,000 but also a jail time up to five years. The FBARs penalties are enormous and can wipe out the entire account.

"Combating offshore tax evasion continues to be one of the IRS' top priorities," said Richard Weber, Chief Internal Revenue Service Criminal Investigation. Americans who failed to file the FBAR should not wait any longer. In 2014 the foreign financial institutions will be required to report the accounts owned by U.S. persons.

Currently several countries (United Kingdom, Denmark, Mexico, Ireland, Switzerland) have already signed the FATCA agreements with the USA. More than 50 countries have started FATCA discussions with the IRS. More and more foreign financial institutions specifically request to sign the intergovernmental agreement to avoid any disruption to the financial system. The latest requests were sent by the Caribbean Community and Chilean Association of Banks and Financial Institutions.

American expatriates with past-due tax returns and FBARs are advised to contact an expat tax preparer and become compliant to avoid any penalties and criminal prosecution.

About the Author

AS Artio Partners

ZM Ishmurzina, MBA, CPA. She is the principal at Artio Partners.

Artio Partners is a CPA firm for American expatriates living abroad and dual citizens. We specialize in past due expat tax returns and complex international tax issues like FBARs, FATCA, foreign tax credit, foreign real estate, PFIC, foreign adoption and controlled foreign corporations. For more information please visit http://www.artiopartners.com.

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Comments about this Article

guest
Mar 25, 2013 10:46

The FBAR filing is only required if you have $10,000 or more in aggregate funds in foreign bank accounts, otherwise you do not have to file a report. In other words you might have a total of 20 accounts in 5 different countries, but if the total amount in all of those accounts is never more than $10,000 at any time in the tax year, you don't have to file. But if the total is $10,000 for even an instant during that tax year, you must file the FBAR report. The article should also have mentioned the FATCA requirements - do a search for IRS FATCA and you will find the IRS webpage on this subject. The current U.S. administration is responsible for FATCA. which coerces foreign banks into reporting on the money in accounts held by Americans overseas. So if you fail to file a FBAR report, the IRS will likely learn of your overseas holdings from the FATCA report made by foreign banks where you have accounts. Is it any wonder that the nationals of other countries who do not tax the earnings of their citizens abroad laugh at Americans?.

First Published: Mar 20, 2013

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