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.