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Report of Foreign Bank and Financial Accounts ("FBAR")

Based upon two recent examples, it is clear that the Internal Revenue Service (“IRS”) has not enacted a kinder and gentler approach to those taxpayers who do not timely file a Form TD F 90-22.1, entitled Report of Foreign Bank and Financial Accounts (“FBAR”) with respect to each and every bank account located in a foreign jurisdiction. 

On July 24, 2012, a Florida resident and former UBS client was sentenced to 4 months in federal prison, 3 years of supervised release, 250 hours of community service, a $2,000,000 civil penalty and a $20,000 criminal fine for willfully failing to timely file an FBAR with respect to two Swiss bank accounts containing a total balance of approximately $4,000,000.  These bank accounts were in the name of two offshore corporations, one domiciled in the Virgin Islands and the other domiciled in Panama.  The taxpayer was deemed to be a “beneficial owner” of the two accounts due to the fact that he was each corporation’s sole owner.

Additionally, on July 23, 2012, a Virginia court ruled in the IRS’s favor against an ex-Mobil executive who intentionally failed to file FBARs on two Swiss accounts containing a balance of approximately $7,000,000.  The IRS demonstrated that this individual “willfully” failed to file the FBAR, and was therefore subject to a civil penalty in the amount of 50% of the foreign bank accounts’ balance.

Taxpayers should note that the IRS is of the opinion that either (i) not knowing; or (ii) not reading the fine print on tax forms should be classified as a form of “willful blindness,” which could lead to the triggering of a 50% penalty on a foreign bank account’s balance.  Given the IRS’s position, it is important to hire an appropriate tax professional to ensure that all required filings are timely handled.

Foreign Account Tax Compliance Act ("FATCA")

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Barry S. Engel
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