When FBAR Penalties Go Awry: Contempt, Fines, Incarceration

When FBAR Penalties Go Awry: Contempt, Fines, Incarceration

When FBAR Penalties Go Awry

In this case, it is important to note that the Foreign Bank Account Reporting penalties did not stem from a criminal FBAR matter. Rather, it was a civil FBAR case that seemingly went off the rails — due to a court order that required the Defendant to repatriate his funds from overseas back to the U.S. to satisfy the debt. When it comes to FBAR penalties, they are typically civil (not criminal) and lead to monetary fines and penalties only. In some instances, FBAR violations can be criminal, but that is rare (and usually involves other issues such as money laundering, tax evasion, structuring, etc.). But, a recent civil FBAR court case has resulted in a ‘temporary’ criminal order’ (for contempt) and has resulted in the defendant being jailed — all stemming from his FBAR penalty non-compliance. The contempt order involves the Defendant’s alleged non-compliance with the Court’s order that the Defendant repatriate his funds from overseas to satisfy an FBAR penalty. Presumably, once the Court can confirm that Defendant complied with the repatriation order, the contempt order will be vacated. Let’s take a brief look at how this defendant ended up in contempt and behind bars.

October 2023 Order to Force Repatriation

In late October of 2023, the court granted the United States’ motion to order the repatriation of foreign assets from overseas to satisfy a $1,000,000+ penalty that the taxpayer owed as a result of alleged FBAR non-compliance.

As provided by the court:

• • • Defendant is ORDERED to forthwith repatriate assets held overseas in an amount to satisfy the Outstanding Debt into a United States bank account in the State of Michigan in his name over which this Court has jurisdiction, inform counsel for the United States in writing of the name and address of the bank and the complete bank account number, and notify the Court of his compliance with this Order within (30) days. The notice shall also identify the name and address of the bank, as well as the last four digits of the account number.

November 2023 Order Denying Stay

The defendant filed a motion to try to stay the order requiring him to repatriate the funds from overseas. The court rejected the defendant’s position and issued the following order:

• • • Defendant is ORDERED to repatriate assets held overseas in an amount to satisfy the Outstanding Debt ($1,102,506.48) into a United States bank account in the State of Michigan in his name over which this Court has jurisdiction, inform counsel for the United States in writing of the name and address of the bank and the complete bank account number, and notify the Court of his compliance no later than December 1, 2023.

December 2023 Order to Show Cause re: Contempt

The court then issued an Order to Show Cause re contempt:

• • • Defendant shall submit, in a writing filed with the Clerk of the Court, all reasons, if any, why he should not be held in civil contempt along with all supporting evidence, if any no later than December 20, 2023. The United States may file a reply to any opposition no later than December 27, 2023.

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    • Defendant  is hereby notified that a failure to comply with this Order may subject him to sanctions for contempt of Court, including a daily fine and incarceration.

January 2024 Order re: contempt of Court

The Judge then issued an order re: contempt as follows:

• • • In his Response, Defendant argues that he should not be held in contempt for violating the Repatriation Orders because he has otherwise complied with the Court’s other orders, including the stipulated preliminary injunction and the Case 2:21-cv-12570-GAD-DRG ECF No. 97, PageID.1252 Filed 01/03/24 Page 5 of 9 6 Court’s recent order for him to surrender his passport. This is not the standard. He must show he has taken all reasonable steps within his power to comply with this Court’s Repatriation Orders, not demonstrate compliance with other orders of this Court. In any event, the stipulated preliminary injunction was a form of relief to which Defendant voluntarily consented and was not ordered by the Court over his objection.

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    • Defendant also asserts that “it is expensive to liquidate the positions in the account.” This does not show Defendant is unable to comply with this Court’s Repatriation Orders, it merely shows he does not want to comply. He has not provided any evidence detailing the purported liquidation expenses. The record before the Court reveals that Defendant has sufficient funds with which to cover any expense associated with liquidating his account and complying with this Court’s Repatriation Orders.

Why Incarceration Instead of a Daily Fine?

In this case, the court believed that a daily fine would not be sufficient, since the defendant has substantial financial resources, and alone a daily fine would not move the meter.

• • • Here, the Court finds that a combination of a daily, monetary fine plus incarceration are appropriate given Defendant’s defiance and failure to take any steps to comply with the Repatriation Orders. Defendant has sufficient financial resources overseas to repatriate funds to satisfy the judgment and pay the daily fine. Incarceration in addition to the daily fine is warranted in this case because Defendant will likely be unmoved to comply with this Court’s Repatriation Orders by the imposition of a daily fine based on his contumacious conduct before the Court.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.  Contact our firm today for assistance.