Texas FBAR Penalty
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Texas FBAR Penalty
They say everything is bigger in Texas — and now you can add FBAR Penalties to the list. When it comes to the IRS and FBAR cases, the IRS means serious business.
In the past few years, the IRS has significantly increased enforcement of FBAR penalties, and the trend continues.
Texas FBAR Willfulness Violation
While in years past, the IRS may have let the enforcement of FBAR penalties expire when the taxpayer didn’t “pay up,” the Internal Revenue Service has now taken to enforcement of FBAR cases with increased vigor — including seeking formalized judgments when necessary.
Some of these judgments can reach into the multi-million of dollars (even for non-willful FBAR penalties)
What Happened in the Bach Case?
In a recent Texas FBAR case, the IRS took the Taxpayer task, and sought to reduce the penalty to judgment. The penalties are creeping towards $1,000,000.
Background
The facts of this case are a bit different than some of the other cases. In this case, Taxpayer was married, and:
- Taxpayer had foreign accounts
- Taxpayer knew about the FBAR
- Taxpayer had a tax preparer
- Taxpayer seemingly did not divulge all account information to the tax preparer
- Taxpayer only reported one account (he had multiple accounts)
- Taxpayer entered into OVDI (Offshore Voluntary Disclosure Initiative)
- Taxpayer dropped out of OVDI before signing the closing letter, but did not “Opt-Out”
These facts will typically lead a client into becoming willful, noting that Taxpayer submitted to OVDI before the Streamlined Procedures were available.
As provided by the IRS’
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Howard Bach is a United States citizen who resides in Laredo, Texas.
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Bach has at least three foreign financial accounts, which at one time were jointly owned with his late wife, Carol Bach.
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For the years 2003 – 2010, Bach disclosed his interest in the ZKB account, timely filed FBARs for the ZKB account, and interest income therefrom was reported on the Bachs’ U.S. income tax returns.
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Accordingly, the penalty assessments described below do not include amounts from this account.
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Bach did not, however, disclose his interest in the BNP Paribas Account or the securities retirement account at Lienhardt & Partner on an FBAR, or his U.S. income tax returns.
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What is OVDI?
Before there was OVDP, there was OVDI — which was essentially the same as OVDP, but preceded the introduction of OVDP
As provided by the IRS’:
- Bach entered into the 2011 Offshore Voluntary Disclosure Initiative (“OVDI”) program on August 11, 2011. Bach was accepted into the OVDI program on October 24, 2011.
Taxpayer Left the IRS Hanging…
The IRS does not like to be left hanging. And, when it came time to sign the closing letter, and submit payment — Taxpayer was nowhere to be found.
As provided by the IRS’:
- Pursuant to Bach’s involvement in the 2011 OVDI program, he was issued a Closing Agreement (Form 906). However, Bach did not sign the Closing Agreement.
- Bach was removed from the OVDI program on November 20, 2014.
- Bach was notified of his removal from the program on Letters sent on May 6, 2015, and July 21, 2015, but he did not respond to these letters.
Increased Penalties for Alleged Willfulness
In this case, the IRS has significant facts in its favor to show Taxpayer may have been willful:
As provided by the IRS’
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For the years 2003 through 2010, Bach filed a Schedule B with his original federal income (Form 1040) tax return, and checked “Yes” in regards to having a financial interest in or signature authority over a financial account located in a foreign country.
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As such, Bach had knowledge the requirement to disclose foreign bank accounts.
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However, Bach only reported amounts for his ZKB account, and only listed Switzerland as the foreign country where the financial account was located.
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Bach omitted both the BNP Paribas account, and the Lienhardt & Partner account on this Schedule B. Bach further omitted that he had an account in France. Bach did not file an FBAR for the BNP Paribas account or the Lienhardt & Partner account.
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On information and belief, Bach only provided information regarding the ZKB account to his tax return preparer, and did not provide information on the BNP Paribas account, or the Lienhardt & Partner account
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Heightened Penalties for FBAR Willful Violations
The IRS seeks nearly $1M in penalties.
As provided by the IRS’
- 31 U.S.C. § 5321(a)(5) provides for the imposition of civil penalties for a willful failure to comply with the reporting requirements of Section 5314 – i.e. when the person(s) maintaining a foreign account fails to timely file an FBAR reporting that account despite having an obligation to do so. For violations involving the willful failure to report the existence of an account, the maximum amount of the penalty that may be assessed is 50% of the balance of the account at the time of the violation or $100,000, whichever is greater. 31 U.S.C. § 5321(a)(5)(C)(i). 26.
- The IRS may also abate part of the FBAR penalty, such that the penalty imposed may be less that the 50% account-balance maximum.
- On June 20, 2016, due to Bach’s willful failure to timely file FBARs reporting his financial interest in the BNP Paribas and Linehard & Partner accounts, a delegate of the Secretary of the Treasury assessed penalties against him pursuant to 31 U.S.C. § 5321(a)(5).
- As of May 26, 2017, the total outstanding balance consisting of the FBAR penalties, penalties for late payment under 31 U.S.C. § 3717(e)(2) and interest, is $853,119.20.
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