It's an exciting day in political and financial circles, what with the unsealing of the first indictments in Special Counsel Robert Mueller's probe into possible Russian involvement in and influence of the 2016 presidential election.
Tax geeks also are basking in part of the buzz since the official charges include some tax matters.
Among the things that Paul J. Manafort Jr., former manager of Donald J. Trump's campaign, is accused of, per the indictment, is hiding his "overseas wealth to enjoy a lavish lifestyle in the United States, without paying taxes on that income."
Manafort also is alleged to used foreign accounts to pay for his high-dollar lifestyle without reporting those accounts to the Internal Revenue Service.
Foreign account transparency: By now, everyone knows that almost all money regardless of its source is taxable in the eyes of the IRS.
When that money is kept in an offshore account, which is IRS-speak for any foreign account, not just those on tropical islands, the account-owning U.S. taxpayer has to let Uncle Sam know about that money.
The reporting of ownership of foreign bank and financial accounts is done by submitting the obviously named Report of Foreign Bank and Financial Accounts, or FBAR. The requirement is part of the Bank Secrecy Act.
The FBAR, which can be a confusing and annoying task that evokes another word that starts with the same consonant, technically must be filed electronically not with the IRS, but with the Financial Crimes Enforcement Network (FinCEN).
This year, the deadline for FBAR filing was moved from the end of June to the standard mid-April filing date. To help those adjusting to the earlier deadline, FinCEN gave them an automatic extension to submit FinCEN Form 114 until the mid-October due date.
$10,000 trigger: You don't have to be as wealthy as Manafort is to fall under FBAR rules.
If you had an interest in, or signature or other authority over foreign financial accounts with aggregate value of more than $10,000 at any time during the tax year, you must file a FBAR.
The key phrase is "at any time."
You can't escape the FBAR reporting requirement by holding $10,001 (or a lot more) in a Swiss or Cayman or Lichtenstein bank account for 11½ months and then withdrawing most of the money by Dec. 31.
Paying for hiding foreign money: Ignoring FBAR can be costly.
The civil penalties for not filing are —
- $10,000 per violation for each inadvertent (non-willful in legalese) nonfiling
- $100,000 or 50 percent of the balance in the account at the time of an intentional (or willful in legalese) nonfiling
Since enactment of The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the penalties also have been adjusted for inflation.
Penalties assessed after Jan. 15 of this year will cost violators —
- $12,663 if non-willful
- $126,626 or 50 percent of the balance in the account at the time of the violation if willful.
In addition to the civil penalties, if you overlook FBAR, you'll owe due tax, penalties on that underpayment and interest charges.
Plus, if you willfully ignored FBAR, you could be subject to criminal penalties, which include $250,000 and five years imprisonment. If FBAR violation occurs with another violation of tax law, the fines can be increased to $500,000.
So even if you have a relatively small five-digit amount in a foreign account, don't overlook your FBAR responsibility.
Just charges: Mueller and his legal staff allege that's what Manafort and Richard W. Gates III, a long-time business associate of Manafort who was charged in the same indictment, did.
Both men are accused of "falsely and repeatedly reporting to their tax preparers and to the United States that they had no foreign bank accounts."
Of course, Manafort and Gates have simply been charged.
All the attention the indictment is getting does not change the fact that the pair, who today (Oct. 30) entered not guilty pleas at their arraignments at the federal courthouse in Washington, D.C., are presumed innocent until convicted.
But the charges, regardless of the ultimate legal outcome, are a good lesson for any U.S. taxpayers stashing cash in global accounts.
Getting FBAR help: If you have any concerns about your FBAR liability, talk with a tax professional who is experienced in foreign tax matters.
If you have to file a FBAR and have trouble completing it, you can get help by:
- Calling 866-270-0733 (toll-free inside the U.S.) or 313-234-6146 (not toll-free, for callers outside the U.S.) between 8 a.m. and 4:30 p.m. Easter Time, Monday through Friday;
- Emailing your questions to [email protected].; or
- Asking electronic filing questions via [email protected] or through the BSA E-Filing Help Desk at 866-346-9478. The E-Filing Help Desk is available Monday through Friday from 8 a.m. to 6 p.m. Eastern Time.
You also can get answers to questions about Bank Secrecy Act regulations, or discuss acceptable alternatives to electronic filing, by calling FinCEN’s Regulatory Helpline toll-free at 800-949-2732. If you're outside the United States, call 703-905-3975 (phone charges apply).
The bottom line is don't ignore the tax and reporting requirements associated with offshore financial holdings. If you do, you could run afoul of the IRS and prosecutors, special or not.
You also might find these items of interest:
- 3 costs of tax evasion: Countries lose more than money
- U.S. collects $10 billion from 100,000 foreign accounts
- Panama Papers reveal extent of international tax havens