California residents with offshore bank accounts may be interested to hear of the latest development in the Internal Revenue Service's pursuit of those who have engaged in tax evasion by neglecting to report assets held in foreign countries. Earlier this week, a federal appellate court reversed a lower court's decision and ruled that a man's failure to file required Reports of Foreign Bank and Financial Accounts was willful, opening the door for increased penalties.
According to the charges against him, the man worked abroad for what was then Mobil Oil Corp. He placed millions of dollars in income into foreign accounts he held at branches of a French bank. The IRS alleged that he did not timely send FBARs to the government from 1993 to 2000, however. The man eventually filed the disclosure documents in 2007. Two years later, the IRS brought its allegations.
This is not the first case against individual taxpayers for their alleged non-compliance with offshore reporting requirements. But it is especially important because the IRS had alleged, and the court found, willful violations of the Tax Code. In fact, according to one tax attorney, a circuit court had not dealt with willful failure to file FBARs for some time until it ruled in this case.
While the finding of willfulness may be confined to the facts of this case, it does provide some guidance on what grounds courts may find willfulness in similar cases. Although willfulness is just one word, it carries vast implications. A non-willful failure to file FBARs results in a $10,000 penalty per violation. By contrast, a willful failure increases that amount to $100,000 or to half of the offshore account's value every year there was a violation.
Source: Reuters, "Ex-Mobil executive loses offshore tax fight with IRS," Lynnley Browning, July 23, 2012.
• Ensuring compliance with all reporting rules is essential for anyone with foreign assets. If you would like to learn more about my firm's practice, please visit my Irvine offshore bank account page.