Ruling Expected to Increase Pressure on Those with Offshore Accounts

A recent court ruling is expected to increase legal pressure on those who fail to report holdings in offshore accounts.

The Fourth Circuit Court of Appeals recently ruled in favor of the Internal Revenue Service (IRS) in a case against Bryan Williams, a former executive at Mobil Oil. The court found that Williams had concealed money in Swiss offshore accounts at Credit Agricole Indosuez from 1993-2000.

The Williams case has been seen by many as an important test of how courts would treat U.S. taxpayers who were aware of their duty to disclose foreign accounts on Foreign Bank and Financial Accounts reports (FBARs), but intentionally failed to do so. Under Treasury Department rules, a willful failure to file FBARs brings penalties of $100,000 per occurrence or 50 percent of the amount in the account for year of violation - all in addition to back taxes and interest owed. An accidental failure to file FBARs, however, carries a penalty of $10,000 per occurrence.

Some have questioned whether the interpretation of "willfulness" in the disclosure rule is fair. After all, some people with foreign accounts have simply not known about the FBAR requirement. The IRS argues, however, that not knowing and not reading the fine print on tax forms can constitute the sort of "willfulness" that triggers greater penalties.

Foreign Accounts a Likely Area of IRS Focus

The FBAR disclosure requirement is nothing new, but the IRS has recently begun enforcing it after investigating a number of foreign banks. Authorities suspect that thousands of U.S. taxpayers have failed to properly disclose foreign accounts and dozens of people have been indicted in recent years.

The number of indictments is unlikely to go down anytime soon. Beginning in 2013, Foreign Financial Institutions (FFIs) that have entered into an agreement with the U.S. will begin reporting their U.S. account holders to the IRS. Unless taxpayers have come forward and voluntarily disclosed their accounts, they will be caught.

Since 2009, the IRS has offered a series of voluntary disclosure initiatives that allow taxpayers the opportunity to come forward and disclose foreign accounts with reduced penalties. These opportunities are likely to end soon, however, once FFIs begin reporting U.S. account holder information to the IRS.

Contact a Tax Attorney

If you have foreign accounts and have questions about FBAR requirements, contact an experienced tax attorney. A knowledgeable tax lawyer can assess your case and advise you on your options.