Let's just this out of the way, the likely consequence is not jail. For most FBAR non-filers, going to jail for failing to file an FBAR is highly unlikely. Also, there is no such thing as a late FBAR Filing Penalty. The only penalties are for not filing an FBAR form. The point of this article to to discuss the likely consequences for not filing an FBAR – FBAR penalties.
How the FBAR penalty process goes.
This is usually how FBAR penalties will be assessed (outside any offshore tax amnesty): You would be selected for an audit with the IRS. Then the field auditor, once aware of likely FBAR violations, will split the audit into two parts. The first part is the regular audit, which is treated normally. If you disagree with the figures and the bill all of your standard rights of appeal, including tax court, are there.
The second part is that the IRS auditor will interview you regarding your willfulness about not filing an FBAR penalty. The auditor will make a report that will be forwarded to an IRS attorney. The IRS attorney will set the penalty amount, typically $10,000 for non-willful violations and 50% of account value for willful non-filing. Here's an example of willful vs. non-wilful:
Unfiled FBARs for 2008-2011, Average Account Balance: $350,000
- FBAR penalty if non-willful: $40,000 (4 violations @ $10,000 per year)
- FBAR penalty if willful: $700,000 (4 violations @ $175,000 per year)
FBAR penalty collection is unlike IRS debt collection.
Once assessed, none of the typical collection or appeals processes are followed. The Treasury Department actually has to sue you in order to collect on the FBAR debt. In onc sense, this is bad, because traditional IRS appeals allow for cost-effective negotiations. However, because the government must actually sue you, and typically the amounts you are being sued for are so high, the government has a more difficult job to prove their case. If you want, you have a right to a jury trial. In tax cases like these, juries have a hard time following facts, and that can lead to an unfair result.
FBAR litigation attorneys aren't exactly cheap. A full FBAR defense could cost in the hundreds of thousands of dollars in legal fees. That's why for many people, it just winds up being easier to enter into the Offshore Voluntary Disclosure Program. If you're concerned about unfiled or mis-filed FBARs, contact us for a complimentary, confidential consultation.
