Criminal Penalties for Failure to Report Foreign Bank Accounts
You may have seen in the news recently that one of the charges that Paul Manafort pled guilty to was failure to file foreign bank account reports. In today’s global economy, it is increasingly common that individuals who are obligated to file U.S. tax returns also have foreign bank accounts, which must be reported to the IRS. This includes U.S. citizens living abroad and foreign citizens residing in the U.S. with foreign bank accounts. Criminal and civil penalties can be levied solely for failure to file a form that discloses the existence of money on which an individual may not even owe U.S. taxes.
Generally, the IRS requires U.S. citizens and residents to report foreign bank accounts over $10,000 (in the aggregate, at any time during the calendar year) that are either in his or her name or over which he or she has signatory authority, using the FBAR (Foreign Bank Account Report or Fin Cen 114) form. This includes joint accounts, mutual funds, and brokerage accounts. Under 31 USC 5314 and 5322 the federal government has the authority to punish those who do report these accounts with fines up to $500,000 and up to 10 years in jail. As seen in the case of Paul Manafort, criminal penalties for failure to file the FBAR are often tacked on to other white-collar convictions or sometimes drug trafficking convictions.
While these forms can now be filed on-line and are relatively self-explanatory, extensions for tax returns don’t apply to FBAR forms. FBAR forms must be filed on April 15th even if the taxpayer requests a tax filing extension, although separate extensions may be available for the FBAR. See report-of-foreign-bank-and-financial-accounts-fbar for filing details.
As with other tax laws, when assessing penalties, the IRS considers whether a taxpayer willfully failed to disclose a foreign bank account. They may also consider a taxpayer’s failure to learn about the disclosure requirement as “willful blindness”, and assess penalties accordingly. If you think you may be subject to FBAR reporting requirements, you should discuss your situation with your accountant or tax attorney.
Nowadays, it is common that individuals who are obligated to file U.S. tax returns also have foreign bank accounts, which must be reported to the IRS.
As Matt Taibbi noted in his New York Times Bestseller, The Divide: American Injustice in the Age of the Wealth Gap (2014), oddly, not a single high level individual Wall Street employee was ever prosecuted and jailed for the large-scale corporate malfeasance that led to the real estate and market implosions of 2008.
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