On June 6, I wrote about the impending FBAR deadline and a use of “quiet disclosures” by foreign account holders to come into compliance with the FBAR requirements. As I stated in that post, the IRS was looking into penalizing individuals that attempt to skirt the OVDP process the IRS set-up to bring taxpayers into compliance. One June 11, 2013 the IRS filed suit to enforce the assessment of the 50% willful failure to file FBAR penalty. See United States v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (SD Florida, June 11, 2013).
This case is alarming for at least two reasons. The first is the actual filing of the lawsuit. Generally, the IRS has 10 years to collects amounts assessed against taxpayers. This same rule is applicable to assessed FBAR penalties, see Internal Revenue Manual. However, 31 USC §5321(b)(2) provides a time limitation for filing suit to collect the FBAR penalty. In this case, it appears the IRS was up against the deadline to file suit. We do not have any facts at this time to know whether the defendant was attempting to make payments or was being uncooperative. What we do know, is the IRS recently acknowledged the need to pursue quiet disclosures, and by filing this suit they were able to make public some of the defendants confidential tax matters. These tax matters just fortunately coincided with the IRS’ public position that taxpayers should not pursue quiet disclosures. In a very public manner, the IRS laid their cards on the table and alerted taxpayers to the cost of a quiet disclosure.
The cost in this case is the second area of concern. The defendant admitted to an interest in a Swiss bank account that had an approximate balance of a $1.5 million. The IRS has now assessed against the defendant penalties totaling over $3 million. The penalties alone are more than twice what the account is worth. Had the defendant pursued the OVDP process, he could have been looking at a penalty of approximately 20% of the highest account balance. Whether the penalties are fair under the Constitution is another matter, and one I cannot answer. But what is clear, is the IRS is quickly letting the tax practitioner and taxpayer community know of their intention to pursue these quiet disclosures. Should you have an FBAR matter, please contact a competent tax attorney.
June 30 is the deadline for individuals and other entities to file all required FBAR forms. The deadline is not like the typical postmark deadline that most associate with the filing of your tax return. The Department of Treasury requires this form to be received on or before June 30 of the year following the calendar year being reported. The FBAR must be mailed to the following address:
United States Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
If an express delivery service is required for a timely filed FBAR, address the parcel to:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226
Failure to file the FBAR can result in severe penalties being assessed against you. For the past several years, the Department of the Treasury, through the IRS, has made FBAR compliance and enforcement an area of focus. They have offered several programs by which taxpayers who have not been in compliance with the filing requirements can come forward under a structured reporting program. This program is called the Offshore Voluntary Disclosure Program, and should you believe you need to avail yourself of this program it would be best to seek the advice of counsel.
In Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May Be Missing Continued Evasion the GAO reported in April 2013 that more than 10,000 people may have tried to avoid the assessment of the FBAR penalties by amending returns and filing late FBAR’s. The Quiet Disclosure is done in the hopes that the IRS does not single any one taxpayer for the application of the appropriate penalties. In essence, the taxpayer is playing an audit lottery, whereby they hope the IRS is too overwhelmed with filings that they have a minimal chance of being targeted specifically. The GAO also reported that many taxpayers are apparently attempting to file properly as a going-forward concern and failing to amend or file for prior years.
The IRS has agreed with the GAO’s report, and has acknowledged that they will adopt the GAO’s method of review to help spot taxpayers who are looking to skirt the FBAR penalties. The failure to file the FBAR form is a serious tax matter, and you should seek counsel to advise you of you options. Waters Law, LLC has helped individuals through the OVDP process and assisted in the reduction of the FBAR penalties for effected taxpayers. Contact us today for a free consultation.