FBAR - Comply with Tax Laws to Avoid Penalties

Recently, a 79 year old widow pleaded guilty to filing false 2006 and 2007 tax returns. Mary Estella Curran who inherited Swiss and Liechtenstein accounts after the death of her husband, created an account with UBS in the name of a Panamanian corporation to hide her assets. She hid the income from her accounts and didnt even bother to file Foreign Bank and Financial Account Report (in short FBAR) from 2001 through 2007. By 2007, the accounts totaled over $42 million. As a result of which, the government lost taxes estimated to be $400,000- $1 million. Since Mrs. Curran willfully failed to report the income and file the required FBAR, she faces a penalty of 50% of the highest balance, which is $21,666,929 and a prison term up to 6 years. So what is FBAR?

FBAR is an annual report filed by Americans to report the existence of foreign bank account / accounts and other financial accounts held abroad. As per Sec. 103.24 of Reports of foreign financial accounts:

(a) Each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) having a financial interest in, or signature or other authority over, a bank, securities or other financial account in a foreign country shall report such relationship to the Commissioner of the Internal Revenue for each year in which such relationship exists, and shall provide such information as shall be specified in a reporting form prescribed by the Secretary to be filed by such persons. Persons having a financial interest in 25 or more foreign financial accounts need only note that fact on the form. Such persons will be required to provide detailed information concerning each account when so requested by the Secretary or his delegate.

That means any United States Person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account AND if the aggregate value of these accounts exceeds US$10,000 at any time during the calendar year must file a Report of Foreign Bank and Financial Accounts (FBAR).

Though the government has introduced OVDP (Overseas Voluntary Disclosure Program) to bring taxpayers that have undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws, its entry is barred if the government learns about an

individual tax non compliance from other sources.

Thus, with the IRS is becoming very strict with respect to FBAR, disclosure and finite penalties would be a better option when compared to FBAR penalties which are worse than tax penalties.

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