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Offshore Holdings: Understanding the Consequences of Failing to File Disclosures

by | Jun 20, 2024 | Blog, International Tax Law, Tax Law |

Offshore financial holdings can offer various advantages, from investment diversification to privacy. However, properly navigating the tax implications and regulatory requirements associated with these accounts is crucial. Failure to comply with these regulations, such as filing the required disclosures like the FBAR (Report of Foreign Bank and Financial Accounts), can lead to severe consequences. In this blog, we’ll delve into the world of offshore taxes, explore why compliance is essential, and what you could be facing if you don’t comply.

Navigating Offshore Financial Disclosure

If you have offshore financial holdings or are contemplating placing funds offshore, you should know that the Bank Secrecy Act (BSA) requires U.S. citizens and residents to file an FBAR (Form TD F 90–22.1). The BSA was created to help the government detect such illegal activities as money laundering, tax evasion, and terrorism.

If you have aggregate balances greater than $10,000 in a foreign financial account at any point during the previous calendar year, you must file a FBAR with the Financial Crimes Enforcement Network—a separate agency of the Department of Treasury. Also, you are required to keep records of offshore accounts for five years after the FBAR due date.

To protect your interests, you are best served by contacting an experienced tax lawyer. The penalties for failing to file the proper disclosures can be severe.

FBAR Penalties

Because the IRS has intensified its efforts to detect and punish FBAR non-compliance during the last decade, failing to file, filing late, and filing a false FBAR can get you in trouble.

In general, the severity of an FBAR penalty is based on a taxpayer’s degree of willfulness. Conduct is considered non-willful when it results from a good-faith misunderstanding of the law’s requirements that leads to negligence, inadvertence, or a mistake. Conduct is considered willful when someone knowingly or recklessly fails to file an FBAR. Deliberately avoiding learning about FBAR obligations—willful blindness—is also considered a willful violation.

Penalties for FBAR violations are as follows:

Non-Willful Penalties

  • $10,000 fine maximum per violation per year
  • Capped at 50% of value of aggregate accounts per year
  • No criminal penalty

Willful Penalties

  • $100,000 fine maximum
  • Capped at 50% of account value
  • Criminal penalties for knowingly and willfully filing false FBAR
    • $10,000 fine
    • Up to 5 years in prison
    • Both a $10,000 fine and up to 5 years in prison
  • Criminal penalties for failing to file FBAR or failing to retain required records
    • $250,000 fine maximum
    • Up to 5 years in prison
    • Both a $250,000 fine and up to 5 years in prison

Get Legal Help Now

Kundra & Associates helps clients in the Bethesda, Arlington, Rockville, Alexandria, and Washington D.C. areas with their FBAR filings. If you have failed to file an FBAR on time (or you suspect you may have been non-compliant with FBAR filing requirements in the past), you still may be able to avoid civil and criminal penalties. With more than 30 years of experience in tax law and specific knowledge of the complexities of FBAR filings, we will provide the guidance and support you need. Call us right away at 301-750-9717 or contact us online.

tax law