FBAR and FATCA violations are either willful or non-willful in nature. The penalties for inadvertent or non-willful violations are understandably lesser than those for willful non-compliance. The IRS punishes those who non-willfully violate FBAR filing mandates with penalties of up to $10,000 per non-complying tax year.
Non-willful violations could potentially include such things as:
- Negligence (i.e., you thought the deadline, after the 6-month automatic extension, was October 16, but it was actually October 15; or you reported a foreign account to your tax preparer, but he/she didn't include it on your return and you failed to notice)
- Mistake (a return or foreign account disclosure was sent with insufficient postage, and came back to you, thus making it late; an account was inherited during the year, but probate court records didn't transfer the account fully until after the filing deadline)
- Good faith misinterpretation of the law (you thought that only people with accounts of cumulative value of $20,000 at any point during the calendar year or more had to be reported, but the cutoff is actually an aggregate value of $10,000)
Convictions for willful violations of FBAR/FATCA requirements could come with years in prison and penalties of up to the greater of $100,000 or 50 percent of the foreign account balance.
The IRS defines willfulness as "whether there was a voluntary, intentional violation of a known legal duty."
In order to support a willful violation of FBAR/FATCA requirements, the IRS must provide evidence. A willful allegation can be supported by:
- Evidence that the taxpayer opened the account him or herself
- Continuing violations after notice of non-compliance was received by the taxpayer
- Taxpayer relied on the advice of an unqualified tax adviser (like a promoter, friend or foreign banker, without consulting an actual preparer or financial expert)
- Previous FBARs or tax returns did not include the accounts at issue
- The foreign accounts contain illegally-obtained income
If you've been contacted by the IRS about foreign accounts, you need to consult an experienced tax attorney. A lawyer's guidance will protect your rights and could mean the difference between civil penalties and criminal charges.