The Bank Secrecy Act (BSA) requires U.S. taxpayers with an interest in or signature authority over foreign financial accounts with a total aggregate value that exceeds $10,000 to file a Report of Foreign Bank and Financial Accounts (FBAR) with the Financial Crimes Enforcement Network (“FINCEN”).
Failure to file can result in severe fines, and even criminal charges. According to the IRS, “those who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.”
Recently, the Supreme Court declined to review a Ninth Circuit Court decision, which affirmed a lower court’s ruling in favor of the IRS, which assessed a substantial $1.2 million penalty against a taxpayer, Letantia Bussell, for failing to disclose financial interests in an overseas account.
Failing to File an FBAR – A Case in Point
According to Reuters, in the particular case against Bussell, the IRS in 2013 assessed a penalty of approximately $1.2 million for failing to disclose her financial interests in an overseas account on her 2006 tax return, which she was required to report in 2007. Bussell did not pay the penalty, arguing that the fine was “excessive and violated treaty provisions.” The IRS in turn, filed suit.
The district court in the Ninth Circuit found that Bussell had willfully failed to file a FBAR, granting partial summary judgment to IRS, but reducing the fine. The court rejected the various arguments offered by the taxpayer. The district court decreased the penalty imposed from $1,221,806 to $1,120,513, which represented the maximum amount permitted under the applicable civil statute.
Bussell appealed the district court’s decision, and the Ninth Circuit affirmed the district court, again rejecting all the arguments offered by the taxpayer. Bussell’s attorneys then asked the Supreme Court to review the Ninth Circuit’s decision, but the Court refused, thus finalizing the decision, and exhausting any further avenues of appeal for Bussell.
Failure to File FBAR Is Serious
The Bussell case should serve as an object lesson in how seriously committed the Treasury Department and the IRS are to leveraging FBAR filings under BSA to crack down on offshore tax evasion. If you have, or believe you have an FBAR filing requirement, non-compliance can result in serious penalties, and/or criminal charges. The FBAR filing requirement is not part of filing your normal tax return, and requires Form 114 to be filed separately and directly with FinCEN.
If you are unsure about your FBAR obligations, the international tax experts with MBAF have years of experience in helping those with FBAR requirements come into complete compliance.
Understanding the tax code and how it applies to FBAR requirements can be complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting Specialists, or call us at 1-800-239-1474.