Can a penalty be more than the balance in your bank account? It may be so in the world of Foreign Bank and Financial Account Report (FBAR) penalties. On May 28, 2014, in U.S. v. Carl Zwerner,1 a jury found that the defendant willfully failed to file FBARs for Swiss bank accounts for the years 2004 through 2006. The maximum penalty is 50% of the highest balance in the unreported accounts for each year. Under these strict rules, the FBAR penalties of $2,241,809 in this case substantially exceeded the balance of the accounts.
It was noted that the defendant kept the accounts under two different entity names and answered “no” on a tax return question that asked if he had any foreign accounts. Nevertheless, he did make a voluntary disclosure and paid taxes for 2007. Further, in 2011, he attempted to participate in the IRS Offshore Voluntary Disclosure Initiative but was denied because he was already being audited. This decision could be revised under the Excessive Fines Clause of the Eighth Amendment.
In this contentious atmosphere, it is worth noting that the filing date for FBAR forms, which went all-electronic in 2013, is June 30. You are required to file if you have a financial interest in or signature authority over at least one financial account located outside of the U.S. with an aggregate value of all foreign accounts exceeding $10,000 at any time during the calendar year.
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1 United State District Court for the Southern District of Florida Miami Division Case No. 13-22082-CIV-ALTONAGA/O’Sullivan United States of America v. Carl R. Zwerner