FBAR Statute of Limitations

Think the IRS has authority over FBARs? Think again.

Jeffrey S. Freeman, J.D., LL.M

Filing U.S. taxes on foreign income is quite complicated and the cost of a mistake may be more than just a fine, it could be jail time. One common blunder is forgetting to file FBARs. If the sum of your offshore foreign bank accounts exceeds $10,000 at any point during the year you must also file a FBAR (Report of Foreign Bank and Financial Accounts). This has been a law since 1970, but enforcement is increasing. So what if you forgot to file your FBAR? Depending on how recent the mistake was you may be wondering “Has the statute of limitations run out?”

Just as filing taxes is complicated, so are the consequences. Not filing an FBAR has a civil penalty for each non-willful violation. If deemed willful, the penalty is the greater of $100,000 or 50% of the account balance for each year you failed to file an FBAR. This can also be considered a criminal offense with fines up to $500,000 and up to ten years in prison.

The IRS says the statute of limitations is six years from when the FBAR was due, so six years from June 30 following the calendar year being reported. An FBAR for your 2010 taxes was due on June 30, 2011 and the statute of limitations would run out on June 30, 2017 according to the IRS.

The IRS authority on FBARs is not entirely clear as FBARs are administered by the Financial Crimes Enforcement Network (FinCEN), which is another unit of the Treasury Department. Some experts say that that the IRS does not get credit when someone is convicted of FBAR violations because it is considered a financial crime, not a tax crime.

The IRS does have some sway regarding FBAR enforcement. Back in 2003, FinCEN delegated authority to the IRS to enforce FBAR penalties. But, the tax court does not have jurisdiction to determine FBAR penalties (see Williams v. Commissioner).

The confusion continues as you start to contemplate cleaning up your offshore foreign bank accounts and income, but haven’t corrected past FBARs. Waiting six years and hoping you are not caught may not actually be your only worry. By closing your offshore accounts it could be viewed as an attempt to cover up criminal activity. That could mean that the statute of limitations would never run out.

Before closing bank accounts or filing FBARs in attempt to clean up your past tax blunders it is important to seek expert counsel. Failing to file FBARs has civil and criminal penalties that are worse than tax penalties. With unclear interpretation on the statute of limitations on failing to file FBARs we would encourage you to get some sound legal advice from an experienced tax professional before taking any action.

About Freeman Tax Law

Freeman Tax Law is a boutique tax law firm with national exposure equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP). In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.

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