FBAR statute of limitations can cause a criminal investigation into tax fraud by the IRS

What Happens If Someone Fails to File an FBAR?

A wrinkle in the law for those with interests in or signature authority over foreign financial accounts, including bank accounts, brokerage accounts, mutual funds, trusts, or other type of foreign financial accounts, exceeding certain threshold is the requirement that such persons file an FBAR or “Report of Foreign Bank and Financial Accounts.” This filing obligation was intended to curb the use of foreign accounts to evade U.S. income tax. As a result, FBAR reporting forms are now required by the IRS and enforced through the Bank Secrecy Act, which require that you file reports annually. So what happens if you fail to file an FBAR and how long do you have to wait before you are in the clear? 

The Statute of Limitations is Six Years or longer.

The IRS says 6 years, judged from when the FBAR was due is the tolling time for the statute of limitations. That’s June 30 following the calendar year being reported. For instance, the 2016 FBAR is due June 30, 2017, and the statute runs on June 30, 2023.

Even with the bright line six-year statute of limitations, the IRS can also use another date. According to 31 U.S.C. 5321(b) the statute of limitations is judged as six years from the time of the “transaction.” The problem with this murky language is that the Internal Revenue Manual does not define or interpret when a transaction occurs for the purposes of the FBAR due date.

There is also a question with respect to U.S. Taxpayers who reside outside of the United States and whether the statute is suspended for purposes of FBAR compliance while the Taxpayer is outside of the United States, consistent with treatment under the Internal Revenue Code with respect to income.

While the IRS requires you file an FBAR and sets out the statute of limitations on filing, FBARs are administered by the Department of Treasury and its Financial Crimes Enforcement Network. Despite this administration authority the Financial Crimes Enforcement Network delegated its FBAR authority to the IRS in 2003.

It is important to note, the United States Tax Court, in Williams v. Commissioner determined that it did not have jurisdiction to consider FBAR penalties. As such, Taxpayers do not have the benefit of pre-payment judicial review.

The IRS has tremendous discretion to determine what constitutes a transaction for the purposes of FBAR and assess FBAR penalties and also the circumstances under which the statute of limitations may be tolled.

Additionally, when it comes to the statute of limitations, closing your accounts and waiting the six year period may seem like the best option at first, but quietly closing accounts and disposing of funds could conceivably backfire.

The IRS may view this action as evidence of evasion or consciousness of guilt. Making this move could put you in a worse position than if you had kept the accounts open and started reporting them prospectively.

If you do choose to close your accounts and manage to make it six full years from your last “transaction” before the IRS notices, you may be in the clear. However, with tremendous deference and authority granted to the IRS to determine what constitutes a transaction and when the statute of limitations truly tolls, as well as determine penalties for FBAR violators, this is a high risk proposition. The IRS has, in the past, argued in income tax cases that this type of “close shop and wait” action is a blatant cover up of a continuing and ongoing criminal activity.

Choices in regards to the FBAR filings and statute of limitations can be extremely difficult. The possibility of large penalties and possible criminal implications require that you seek you legal advice based on your particular situation. There is no one-sized fits all response to FBAR filing and the statute of limitations. Consult your tax attorney before making any decisions regarding FBAR and the statute of limitations.

Money Laundering is the same thing as tax evasion according to the IRSMoney Laundering and Tax Evasion

Money laundering and tax evasion are closely related. The IRS has used money laundering statutes to help cut down on tax evasion. Money laundering may be seen as willful tax evasion. Hiding money will off course lead to not paying taxes on the same.

What is Money Laundering?

Money laundering is a common occurrence today. Global concern surrounding this nefarious activity is based upon the theory that failure to report and account for this activity erodes the economic base of national economies. Individuals and organizations involved in criminal activity attempt to obscure the illegal source of the funds in an effort to avoid detection from law enforcement officials.

These funds commonly referred to as “dirty money” are the by-product of illegal activities such as drug and human trafficking, gambling, elaborate fraud schemes, and terrorism. Historically, criminals have utilized foreign financial institutions for purposes of “washing” dirty money through legitimate enterprises in order to avoid the scrutiny of taxing authorities.

Recent Global initiatives in combating money laundering including criminal prosecution, and the imposition of stiff criminal penalties have heightened foreign financial institution awareness and willingness to cooperate with authorities.  Moreover, new reporting requirements, mutual exchange of information agreements and coordination of local, national and global law enforcement agencies will make it more difficult for individuals to avoid detection.

How does money laundering work?

The main objective behind money laundering is to obscure the illegal source of the funds, thereby enabling the criminal to use the money without detection. The process is complex as it involves several financial transactions which may be carried out through various financial outlets in various countries. There are so many ways in which individuals hide money derived from criminal activities to avoid detection. Some of them are:

  • Depositing a large sum of money earned illegally in small amounts in a financial institution under different fake names.
  • Depositing a large sum of money earned illegally in small amounts by using various bearer instruments like money orders.
  • Creating a Trust or Corporation or a non-profit organization or an account under a different name in a different country and moving large sums of money there.

The hidden money is then accessed through debit cards, credit cards, money orders or cash withdrawals. Check this article “Caribbean based investment advisors and an attorney”  to see how Caribbean based investment advisors and an attorney colluded in their efforts to helping US Citizens hide money abroad.

Tax Evasion

Tax evasion is the wilful attempt to evade or defeat the assessment of taxes or the payment of taxes. The act of evasion occurs when a taxpayer either willfully fails to report his or her income as required by law, or having reported the income, engages in conduct that either hinders or defeats any attempt by the IRS in collecting the tax owed. In the latter case, the taxpayer prevents IRS from collecting by moving assets around under different ownership. An example would be: A taxpayer reports his income and has a tax liability. He has the money to pay the liability but instead, he closes all his bank accounts and moves the money to a different account under a different name. This is a clear indication of wilful tax evasion. For more on Tax evasion, check IRS Tax Crimes handbook.

Is money laundering therefore tax evasion?

In the U.S., money laundering is tax evasion but not all tax evasion is money laundering. According to IRS, money laundering is tax evasion in progress if the underlying conduct violates income tax laws and Bank Secrecy Act.  If you are a U.S. citizen/ permanent resident, the law requires you to report your income and pay taxes on the same.

As a U.S. taxpayer, when you are involved in money laundering, it is obvious that you are hiding the money in question. The reason may be because the money is from criminal activities you are involved in and you do not want your cover to be blown. In this case, you want to hide the dirty source of your money through laundering to be able to spend it without worrying about the IRS and the tax consequences. Alternatively, the main reason behind your hiding the money may be because you are actually running away from paying your taxes. Either way, this is tax evasion engineered through money laundering. It does not matter if the income is legal or illegal, you have to pay your taxes or else the IRS will somehow catch up with you some day. It is even worse when your income is from criminal activities since there may be additional consequences for the underlying crime. I think this is why individuals who engage in criminal activities choose to launder their money to avoid detection by the government for the fear of facing criminal prosecution.  While doing so, they are evading their responsibility to pay taxes.

Is there a way out of this money laundering mess?

You may have been involved in money laundering and off course tax evasion in the process and may be you are tired of hiding.  Your question may be “can I really make it right? Is there really a clean way out?” While there is no guarantee of avoiding criminal prosecution, there is still a chance to make it right. This is by getting into the OVDP (Offshore Voluntary Disclosure Program). You have to get a pre-clearance letter from the IRS to be accepted into the OVDP. You do this by providing all information on all foreign financial accounts, filing amended income returns for all the years in question etc.  Once approved, you will be able to enter into “Closing Agreement” with the IRS which means that the IRS will not revisit the matter again.

The Closing Agreement may differ from one case to another since one size does not fit all. This sounds easy, right? It may seem so but the whole process requires a careful evaluation of all the facts. If you need help walking through this, contact The Law Office of Anthony Verni . We can help you evaluate your situation and devise the best strategy to follow.


The Financial Crimes Enforcement Network, FBAR enforcement and FinCen form. The Report of Foreign Bank and Financial Accounts, (FBAR), is required

How Does the IRS Enforce the FBAR?

The Report of Foreign Bank and Financial Accounts, (FBAR), is required when a U.S. Person has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000. If a report is required, certain records must also be kept. In April 2003, the IRS was delegated civil enforcement authority for the FBAR.

Under U.S. law, a “U.S. person” is required to annually file an FBAR and report his or her ownership of or signature authority over certain “foreign financial accounts.”  In general, FBAR reporting is required if the maximum aggregate value of the US person’s foreign financial account(s) exceeded US$10,000 at any time during the calendar year.

FBARs must be e-filed on FinCEN Form 1144 with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) on or before June 30th for the preceding calendar year.

Starting for the tax year 2015, the FBAR will have to be filed by April 15. No extension of time to file is available. Civil penalties for failing to properly file an FBAR range from up to US$10,000 per unreported account for non-willful violations, to the greater of US$100,000 or 50 percent of the account balance per year for a “willful” failure to properly report a foreign account.

Regulatory authority for the FBAR is 31 C.F.R. §§ 103.24 and 103.27. Section 103.32 provides for FBAR records and Section 103.56 tasks the IRS with FBAR enforcement. Section 103.24 states that each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) who has a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country must report that relationship to the Commissioner of the Internal Revenue for each year in which the relationship exists. The U.S. person must provide information as specified in the required reporting form.

The authority to enforce the provisions of 31 U.S.C. § 5314 and 31 C.F.R. §§103.24 and 103.32 has been re-delegated from FinCEN to the Commissioner of the Internal Revenue Service by a Memorandum of Understanding (MOU) between FinCEN and IRS. This includes authority to:

  1. Investigate possible civil violations of these provisions;
  2. Assess and collect civil FBAR penalties;
  3. Employ the summons power;
  4. Issue administrative rulings; and,
  5. Take any other action reasonably necessary for the enforcement of these and related provisions, including pursuit of injunctions.

The IRS may waive penalties if the failure to file FBAR was due to reasonable cause.  However, “willful” reporting violations may be subject to criminal penalties, which may be imposed in addition to asset forfeiture or civil penalties.

U.S. persons, as defined by the statute, with unreported foreign bank accounts are increasingly at risk of the IRS and Department of Justice identifying those accounts since the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted in 2010 and implemented on July 1, 2014, requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any US account holders or US beneficial owners of financial assets abroad, and to automatically disclose account information annually to the IRS.

Once that information is disclosed and the IRS learns of a failure to file, the IRS may act to enforce civil and sometimes criminal penalties against the U.S. Person with legal authority or ownership of the foreign financial account.

It is vitally important you seek counsel in dealing with FBAR filing and related issues. Once a U.S. person is under IRS audit or whose non-compliance has been identified by the government, there are no corrective remedies available for FBAR compliance. A US person concerned that the government may view any FBAR errors or omissions as “willful” should engage legal counsel to fully evaluate the facts and circumstances and assess the potential civil and criminal exposure in order to resolve the matter before the IRS gets involved.

5th amendment privilegeThe US District Court for the District of New Jersey has applied the required records doctrine to documents required to be maintained under the US Bank Secrecy Act (BSA), and thus rejected taxpayers’ argument that they can refuse to produce such documents by invoking their privilege against self-incrimination under the Fifth Amendment to the US Constitution (United States of America vs. Eli Chabot and Renee Chabot, Civ. No. 14-3055 (FL W), 3 October 2014).

On May 12, 2012, Eli and Renee Chabot, appeared in front of the IRS to testify. The Chabots, on the advice of counsel, asserted their Fifth Amendment privilege and refused to answer any IRS questions about foreign bank accounts.

On June 20, 2012, the IRS issued another summons, requesting the parties to give testimony and produce extensive documents about foreign bank accounts. On July 13, 2012, the Chabots’ counsel advised the IRS that the Chabots would not appear, were asserting their Fifth Amendment privilege, and declined to produce the requested documents.

The US District Court stated that the required records doctrine applies if the following requirements are met:

-The purposes of the government inquiry must be essentially regulatory

-Information is to be obtained by requiring the preservation of records of a kind that the regulated party has customarily kept

-The records must have assumed public aspects that render the records at least analogous to public documents

In the case of the Chabots, the Court determined that the required records doctrine prevented the taxpayers from asserting their Fifth Amendment privilege, and the court granted the IRS’s petition to enforce its summons served on the taxpayers.




There are many reasons why clients with Tax issues with the IRS should avoid the use of Tax Resolution firms.

Tax Resolution Firms can help represent your case to the Internal Revenue Service

The “Tax Resolution Company“, a relatively recent development, has become a serious problem for consumers in our country and is not dissimilar to those companies that promise to solve your credit card debt, student loans, or help you save your home from foreclosure.

The Tax Resolution business model looks something like this:

  1. Tax resolution firms typically advertise heavily and/or may have a significant organic presence on leading search sites, offering to settle Federal tax obligations for a fraction of the amount owed.  These claims are for the most part false
  2. Tax resolution companies typically claim to have tax attorneys, CPAs, and enrolled agents within their employ, when in many cases, no such personnel exist or professional licenses are merely “parked” for appearance purposes
  3. The principals of many tax resolution companies are rarely, if ever, disclosed in any organization document filed with either the state of incorporation or with any state where the Firm conducts business. Ownership is usually in the form of a limited liability company whose members include either other entities or individuals (spouses, relatives, etc.) who have nothing to do with the firm. There are two reasons for this. One is to limit liability. The second reason is to prevent the client from uncovering prior unfavorable history about the Firm’s undisclosed principals
  4. Tax Resolution Companies may also attempt to pass themselves off as either a non-profit consumer group or a Christian business. This is simply another tactic to suck the consumer in
  5. A taxpayer who calls the Tax Resolution Firm is generally greeted by a high-pressure salesperson, who has neither the tax knowledge nor the experience to appropriately assess a particular tax situation. This should be the first signal to run!  These individuals will say anything to force you to part with your hard earned money since their compensation is strictly commission based
  6. Tax resolution firms take large retainers, typically $5,000-$10,000.

The settlement of any tax debt for less than its face value is based upon a myriad of factors, including but not limited to, the financial condition of the taxpayer and collectability, the number of years remaining on the statute of limitations for collections, and whether the tax debt was created based upon the IRS filing of substitute returns.

While reputable Tax Resolution Firms do exist, there are other reasons why hiring a reputable tax attorney is always the preferred choice.

  1. First, Enrolled Agents and CPAs cannot litigate tax cases. A reputable tax lawyer who is also a certified public accountant, and/or who has an LLM in tax law is the best combination of credentials to look for.   Tax attorneys focus their practices on tax law and are trained in the art of advocacy. Most tax attorneys also focus their continuing legal education on relevant tax topics and actively participate in organizations focusing on tax matters.
  2. Next, attorneys are licensed professionals, and as such, are subject to disciplinary authority of their state bar. Tax Resolution Firms are not subject to any professional licensure or professional regulation. An aggrieved client’s only recourse is to file a complaint with the relevant State Attorney General’s Office, the Federal Trade Commission, or to file a lawsuit against the Firm.
  3. Finally, communications between a client and his attorney are privileged. This generally means that neither the attorney nor the client can be forced to divulge those communications, unless the privilege has been waived.  No such privilege exists in the case of communication between an accountant, enrolled agent, or other Tax Resolution personnel and the client.

For the above reasons, any client looking to settle a tax debt for less than its face value should steer clear of any business operating under the Tax Resolution Firm model and hire a reputable tax attorney.


Everyone’s Getting FATCA Compliant

FATCA NewsThe worldwide landscape of transparency is changing as the United States works with other nations to increase information sharing around the world. Work to implement Foreign Account Tax Compliance Act (FATCA) is headlining these efforts to fight tax evasion.

Enacted in 2010, FATCA requires foreign financial institutions to tell the Internal Revenue Service about their U.S.-owned accounts or face, in some cases, a 30 percent withholding tax on certain U.S.-source payments that are made to them.

The Treasury Department is engaged in negotiating dozens of pacts, known as intergovernmental agreements (IGAs), that would allow financial institutions to report the information to their own governments, which then would share the information with the United States.

So far, FATCA has proved successful.

“Countries worldwide have demonstrated a strong interest in becoming transparent on that level,” Robert B. Stack, Treasury Deputy Assistant Secretary for International Tax Affairs, told Bloomberg BNA. “This interest shows how seriously countries around the world are taking this. FATCA has pushed that effort further and is rapidly becoming the global standard for exchange of information.”

Prosecutors announced Jan. 20 that a Connecticut business executive has pleaded guilty to willfully failing to report offshore bank accounts to the IRS.

Tax Evasion, Offshore Account filing taxes with the IRSAs part of his plea, which was entered Jan. 16 2015 before Magistrate Judge Debra Freeman of the U.S. District Court for the Southern District of New York, George Landegger of Ridgefield, Conn., agreed to pay a civil penalty of more than $4.2 million and more than $71,000 in back taxes.

According to the charges in a criminal information, Landegger maintained undeclared accounts at an unidentified Swiss bank based in Zurich from at least the early 2000s until 2010. His undeclared assets reached a high value of over $8.4 million in that period.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

According to prosecutors, a representative of the Swiss bank referred Landegger to a Zurich-based attorney, Edgar Paltzer, to form a sham entity to hold his undeclared accounts. In April 2009, Landegger met with the bank representative and another individual to discuss the future of his undeclared accounts in light of the news about a U.S. investigation into hidden accounts at another Swiss bank, UBS AG, according to the charges.

At the meeting, prosecutors said, Landegger affirmatively rejected the possibility of disclosing his undeclared accounts to the IRS through its Offshore Voluntary Disclosure Program or otherwise. Instead, he shifted the assets out of Switzerland into a new, declared account in Canada and an account kept by another person in Hong Kong.

“The benefits of citizenship or residency in the United States come with certain obligations, including, as George Landegger well knew, the legal requirement to report foreign bank accounts,” U.S. Attorney Preet Bharara said. “He will now pay for his illegal conduct.”

Secret Foreign Bank Accounts

Secret Foreign Bank Accounts are not secret anymoreSecret foreign bank accounts have been at the center of money laundering. This is especially with reference to offshore bank accounts.  It is very common for people to hide money in secret foreign bank accounts in other countries in an effort to avoid paying taxes on the monies.

A Case Where a Businessmen & Attorney Collude to Hide Money in Secret Foreign Bank Accounts

In the case, United States v. Kerr, D. Ariz., No. 2:11-cr-02385, which Bloomberg reports, two businessmen and an attorney were charged in U.S. District Court for the District of Arizona for hiding more than $8,000 million in assets in foreign bank accounts that were kept a secret.

The prominent Phoenix businessmen, Stephen M. Kerr & Michael Quiel, solicited the services of a former San Diego attorney in committing this crime.

The attorney, Christopher M. Rusch, assisted the two businessmen to set up secret foreign bank accounts Switzerland. The Swiss accounts were set up in the name of nominee entities concealing the identity of Kerr and Quiel as the owners of the bank accounts. They then went ahead and deposited millions in these secret foreign bank accounts from sale of stock they had concealed their ownership in acquiring. All this while, Rusch acted as a signatory authority to these secret accounts. He carried out all the transactions on these accounts on behalf of Kerr and Quiel.

The Role of the Attorney

Rusch, focused on criminal and civil tax defense, creating and maintaining offshore accounts among other things. He was a master in setting up these offshore accounts and was not left out in using them too. He also maintained secret foreign bank accounts in Switzerland and Panama. He went against the statement “preach water and drink wine.” He actually preached the water and drank it, or how else can you convince clients to hide money in secret foreign bank accounts.  At one point, he helped Kerr to purchase a golf course in Colorado from his secret accounts. He actually did this using his nominee Panamanian entity. As if that was not enough, he helped Kerr and Queil to use the hidden money in the secret foreign bank accounts at their comfort back in the U.S. by transferring funds to them through his client trust account.


You cannot hide from the law for so long.  Rusch was sure they will never be found or may be the deal he got from this two business men was too sweet to be ignored.  Either way, he was at the center of breaking the law by aiding money laundering and in the promoting tax evasion. IRS and the government proved too smart to be outsmarted when they caught up with the three.

 Kerr and Queil were each convicted of two counts of filing false individual tax returns for 2007 and 2008. In addition, Kerr was charged with failing to file FBARs (Report of Foreign Bank and Financial Accounts) for 2007 and 2008.  Rusch, pleaded guilty to conspiracy to defraud the government and failing to file an FBAR.

In case you have found yourself in the above situation, contact us for help. It is getting hard to run from the law with the IRS intensifying its search on these secret foreign bank accounts.

Failure to file FBARs as a Signatory Authority

The Foreign Bank Account Report (FBAR) can be submitted with the advice of a tax law attorney.Failure to file FBARs as a Signatory Authority to a foreign bank account is an offense punishable by law according the to the Bank Secrecy Act

The U.S. Court of Appeals for the Seventh Circuit affirmed the conviction of an Indiana CPA/Accounting professor by a U.S. District Court in United States vs Simon, 7th Cir, No. 11-01837. The conviction was based upon the taxpayer’s filing false income tax returns, failure to file FBARs (Foreign Bank Account Reports), mail fraud and financial aid fraud. One of the four FBAR counts related to Simon failure to file FBARs (reports on foreign bank accounts) for which he was a signatory for the years 2002 through 2007. During this time period he was the managing director of three foreign companies and had signatory authority over foreign bank accounts of these companies.  The companies included: The Simon Family Trust based in the Cook Islands, Elekta Ltd, a Gibralter company and JS Elekta, a Cyprus corporation.

Charges on Failure to File FBARs

Simon was charged with four counts of failure to file FBARs  related to foreign bank accounts according to 31 U.S.C. §§ 5314, 5322. For the years 2005 through 2007, Simon  conceded he was required to file a form TDF 90-22.1 now FinCEN Form 114 by June 30th for the foreign bank accounts aggregating more than $10,000 in the previous years. He also admitted that he failed to do so. However, Simon argued that he did not violate the law.

Simon’s defense

According to Simon, the IRS issued guidance in 2009 and 2010 that granted retroactive extensions for filing FBARs for the year 2008 and preceding years. This guidance was issued through IRS notices.  Taking the notices into consideration, Simon asserted that he filed the required FBARS prior to his indictment. He insisted that he did the filing within the deadlines set forth in the notices 2009‐62 and 2010‐23 and could therefore not face prosecution on failing to meet the original deadlines.

Government’s standing

The Government maintained that Simon’s crimes were complete before the IRS issued the notices. According to the government, Simon could not use the notices to exonerate himself from crimes he had already committed before the notices came into play. According to the Government,

“amendment of a regulation does not relieve the taxpayer of criminal liability for conduct that occurred before the amendment even when the amendment purports to have retroactive application.”

In addition, nothing in the notices promised relief from criminal liability for taxpayers who willfully failed to file FBARs. The only relief in the notices was that the IRS would not impose civil penalties for taxpayers whose failure to comply was non-willful.

Evaluation Points

  1. Setting up and using foreign corporations, trusts and other devices for purposes of hiding foreign funds never works and can be viewed as strong evidence of “willfulness” in an FBAR prosecution.
  2. Masking transfers from foreign corporate  and other third party accounts as “loans” can be used by the Government as strong evidence on intent in a criminal tax prosecution.
  3. The facts in the Simon Case involved a wilful failure to file FBARs.