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Consequences of Failing to Make an Offshore Disclosure

Consequences of Failing to Make an Offshore Disclosure

A failure to report your undisclosed foreign accounts can result in both criminal and civil penalties. In a worst-case scenario, it’s possible to face hundreds of thousands of dollars in fines and possibly jail time.

Criminal FBAR Penalties

Criminal Foreign Bank Account Report (FBAR) penalties are not as common as civil penalties, but are much more severe. The criminal penalty for willfully failing to file an FBAR is up to $250,000 and five years in jail.

The penalty becomes even more severe if you willfully fail to file an FBAR while violating another law of the United States or as part of a pattern of illegal activity involving more than $100,000 in a 12-month period. In this case, you could face up to $500,000 in fines or 10 years in jail.

Civil FBAR Penalties

Civil FBAR penalties depend on whether the violations are considered willful or non-willful. The amount of penalties can also vary based on many factors:

  • How many years of FBAR violations occurred.
  • How many foreign accounts you own.
  • Whether the mitigation guidelines apply.
  • The discretion of the IRS examiner handling your case.

The non-willful FBAR penalty is generally $10,000 per violation. However, IRS guidelines typically result in only one penalty assessment per year, even if you have multiple accounts. 

If you have several years of violations, the examiner may assess separate penalties for each year or just one penalty overall. Your penalties may also be even lower if you qualify for the mitigation guidelines.

The civil penalty for willful violations is $100,000 or up to 50 percent of the highest aggregate account balance. This is the penalty that can be assessed as part of the new offshore disclosure rules.

However, the examiner once again has significant discretion when determining the exact amount of your penalties. If you have several years of violations, the examiner can choose to assess a single penalty and spread it over the years under examination. In no case can the total penalty assessment exceed 100% of the highest aggregate account balance.

One final note—you can also lose your ability to disclose your accounts once the IRS begins an investigation or examination. You need to disclose your non-compliance before the IRS starts their investigation.

Get help with offshore disclosure matters by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.