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Federal FBAR suit seeks $26 million in penalties

It's not a crime to put your money into legitimate foreign financial institutions. However, if the amount meets a certain threshold, you are required to report that money to the U.S. government.

When U.S. taxpayers ignore this process, officially known as filing of a Report of Foreign Bank and Financial Accounts, or FBAR, they can face costly consequences.

That's the case in the FBAR collection complaint filed Aug. 15 by federal officials seeking judgment against the defendant who, per the court filing, owes more than $26 million in willful FBAR noncompliance penalties.

Uncle Sam also is asking for amounts to cover the government's costs in taking legal action and, per the court document, "any other relief the Court finds appropriate."

Adding it all up: In the filing last week with the U.S. District Court for the District of Colorado, government attorneys detailed their case. Below is the dollar break out of the money the feds are seeking from the defendant.

  • $23,102,381.00 in willful FBAR penalties;
  • $2,631,772.60 in accrued and assessed late payment penalties;
  • $877,257.53 in interest, plus costs of collection, as of Aug. 11.

That comes to $26,611,411.13 in FBAR tax violations that U.S. attorneys say the Treasury is due.

That $26+ million amount also this weekend's By the Numbers figure.

FBAR failings: You can read the FBAR filing submitted last week to the U.S. District Court for the District of Colorado for details. But if you're just looking for highlights, here are some from the document.

The defendant taxpayer had a financial interest in, or signature or other authority over, two accounts at a Swiss bank, a third account at an Italian bank, and a fourth account a bank in Iran.

U.S. taxpayers must by law file a FBAR if they have a financial interest in or material control over assets held in foreign bank accounts or investment vehicles that meet the reporting threshold of $10,000. That's $10,000 collective total of all accounts at any time during the tax year.

Federal attorneys say the taxpayer's funds exceeded the $10,000 aggregate reporting threshold during the 2008, 2009, 2010, 2011, and 2012 calendar years. He apparently didn't tell the Colorado tax prepare who handled his returns about the foreign accounts.

During 2014, the defendant also participated in the IRS' offshore voluntary disclosure initiative (OVDI). Under this program, taxpayers 'fessed up about their foreign assets and paid tax in order to avoid criminal prosecution.

While the defendant in this multimillion-dollar case disclosed his four foreign accounts and filed delinquent FBARS for 2008-2012, the IRS removed him from the disclosure program apparently because he disagreed with the final closing package.

Willful vs. oversight: When taxpayers don't realize they must file a FBAR, that's a non-willful violation of the requirement. Penalties still are stiff, but generally limited to fines.

However, a willful failure of FBAR reporting is a criminal offense. It opens the noncompliant foreign asset holder up to not only to larger fines, but also possible jail time.

Uncle Sam isn't seeking prison time here, just the money. And he's hoping the court will make sure he gets the FBAR related $26+ million. Soon.

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