Many taxpayers think failing to file FATCA or FBAR forms is minor. The IRS does not always see it that way. A missed filing can stay civil, but it can also take a more serious turn if the IRS believes the omission was intentional. That shift often happens quietly, and once intent becomes the issue, the risk can change fast.

In this blog, we’ll explain how a FATCA violation can turn into criminal tax exposure, and why failing to comply with FBAR can make it worse.

What Is FATCA and How Does It Relate to FBAR?

The Foreign Account Tax Compliance Act (FATCA) is a U.S. law passed in 2010 under the Hiring Incentives to Restore Employment (HIRE) Act. It was created to help the government stop people from hiding money overseas. FATCA does this by asking U.S. persons for foreign asset reporting and by requiring foreign banks to share information about U.S. account holders with the IRS.

How Does It Relate to FBAR? 

FATCA and FBAR connect because both deal with foreign asset reporting, but they apply to different parts of it. FATCA reporting requirements cover a wider range of foreign financial assets, while FBAR focuses only on foreign bank accounts. They’re related, but each one has its own rules and filing process.

• FBAR is specifically for reporting foreign bank accounts that total over $10,000 at any point during the year.
• FATCA, in contrast, mandates the reporting of a wide variety of offshore assets, which fully includes not only foreign bank accounts but also stocks, bonds, and interests in businesses.

Civil vs Criminal FATCA Violations: Key Differences

When it comes to FATCA violations, the consequences can differ based on whether they’re civil or criminal. This distinction matters because it affects how serious the situation is and what kind of penalties you might face. 

Here’s a quick breakdown of the key differences in civil vs. criminal FATCA violations:

When Do FATCA Violations Become Criminal?

FATCA violations can become criminal when there’s a clear intent to avoid or hide tax obligations. Undergoes a FATCA criminal investigation, and if there is evidence of willful misconduct, such as deliberately not reporting foreign assets, criminal penalties may apply.

Willful Failure to File Form 8938

Form 8938 (Statement of Specified Foreign Financial Assets) is a required form to report foreign assets, and if someone purposely fails to file it, it becomes fatca willful violation. If proven, this can lead to significant fines of up to $50,000 for each year the form was not filed, along with possible prison time, especially when the purpose is to hide assets or avoid taxes.

False Statements and Omitted Foreign Assets

If someone hides foreign assets or provides incorrect information or false FATCA reporting, this is considered tax fraud. The consequences can include serious penalties, such as fines and the potential for jail time, depending on the severity and intent of the act.

Patterns That Trigger Criminal Referral

The IRS looks for patterns of repeated failures or suspicious behavior when deciding if a case should be referred for criminal investigation. This FATCA criminal trigger includes:

• Not filing required FATCA forms like Form 8938, even after being reminded, raises concerns of deliberate tax avoidance.
• Large or unexplained gaps between reported foreign assets and actual holdings can signal intentional underreporting.
• Consistently reporting less foreign income than earned suggests an attempt to hide taxable income.
• Leaving out foreign accounts or assets from tax filings is treated as an effort to conceal income or wealth.
• Not reporting ownership of foreign trusts or businesses can indicate intentional avoidance of tax obligations.
• Inflating the value of foreign accounts to mislead the IRS is a tactic used to evade taxes.
• Setting up foreign shell companies to hide assets can lead to severe legal consequences.
• Providing conflicting or incorrect information on tax filings, especially about foreign assets, can trigger further investigation.
• Moving money across borders with the intent to avoid reporting indicates attempts to hide income or assets.
• Participating in schemes that conceal assets or income in foreign jurisdictions is considered criminal tax evasion.

Also Read → FATCA Form 8938 Filing Requirements for U.S. Expats 

Willfulness Standards Used in FATCA Criminal Cases

To call something criminal under FATCA, the IRS doesn’t just look at whether the form was missed; they look at the FATCA willfulness standard. The IRS needs strong proof that it wasn’t an accident or a misunderstanding but a deliberate choice to stay non-compliant.

1. Intentional violation of a known legal duty: This implies that the person is aware of the requirement to declare his/her foreign assets but intentionally chooses not to do so. The main point here is the combination of the knowledge and the willful decision not to comply with the rule.

2. Knowledge of the reporting requirement: The IRS determines whether the taxpayer was aware of the fact that the foreign assets were subject to reporting under FATCA, which necessarily included the duty to file Form 8938 if required. It’s a matter of proving awareness, not of guessing or assuming.

3. Specific intent to evade taxes: For criminal liability, the IRS checks proof that the taxpayer willingly avoided reporting the asset to lower his/her tax. This is not simply a case of error; it is necessary to present a deliberate scheme to keep things concealed.

4. Evidence that gives strong support to the willfulness: In criminal cases, strong proof is needed. The IRS must be able to prove, based on evident facts, that the taxpayer was guilty of purposely violating FATCA regulations, not just accidentally or through lack of understanding.

5. Fake misunderstandings can reduce willfulness: If a person has been living under the misconception of not being required to report or has honestly misinterpreted the rules, that could be a plus point in his/her favor. This is not a sure defense, but the IRS does take into account if the error was honest as opposed to being deliberate.

6. Non-substantive arguments do not assist: Assertions that tax laws do not apply or are unconstitutional do not eliminate willfulness. If a person willfully disregards the law and then tries to support his/her action with these arguments, the IRS will still view the conduct as intentional non-compliance.

Role of the DOJ and IRS Criminal Investigation Division

The Department of Justice (DOJ) and the IRS Criminal Investigation Division (IRS-CI) have major roles in enforcing criminal non-compliance with FATCA regulations. Although the IRS enforces the civil side of compliance, the other roles of criminal investigation and prosecution belong to the IRS-CI and the DOJ, respectively.

1. Investigations by IRS-CI

The IRS Criminal Investigation Division deals with the investigation of suspected FATCA crimes. Their task is to distinguish between innocent and outrageous behavior, such as knowingly underreporting foreign assets or ignoring the need to report them. They resort to various techniques to monitor and process financial information with the potential to establish tax evasion.

2. Prosecution by the DOJ

If enough evidence is gathered that suggests criminal behavior, the case will be passed on to the DOJ to be prosecuted as a crime. The DOJ will then attempt to prove in court that the taxpayer intentionally avoided reporting their taxes due to FATCA obligations. If this happens, a guilty verdict can result in hefty fines and even imprisonment.

3. Collaboration between the IRS and the DOJ

The IRS and the DOJ collaborate throughout the process. While the IRS-CI obtains financial evidence, the DOJ concentrates on legal issues to ensure that the case proceeds quickly and justice is served.

4. Resources and Methods Use

Both agencies have the capabilities of using modern systems for tracing cross-border financial dealings. They also have the expertise of tracing hidden assets through forensic accounting techniques. It is thus very challenging for taxpayers evading taxes to escape through hidden assets when these two agencies have the capabilities of tracing such assets.

The collaboration between the DOJ FATCA investigation and IRS-CI makes sure that not only are FATCA violations detected, but they are also vigorously prosecuted, thus contributing to tax compliance.

Criminal Penalties for FATCA and FBAR Violations

Sometimes, it’s not just about late forms or missing details. When the IRS sees intent behind what happened, criminal FATCA penalties step in. And at that point, we’re not just talking about money; real consequences can follow.

Fines and Financial Penalties

FATCA criminal fines aren’t small, and they don’t stop quickly either. Just one missed Form 8938 or a hidden asset can turn into thousands of dollars in penalties, with more stacking on each month. It adds up faster than most people think.

Prison Exposure and Felony Charges

This is where things really get serious. FATCA criminal charges can lead to prison time, especially if the IRS believes the mistake wasn’t just careless but willful. And once felony charges are on the table, every detail in your records starts to matter.

• FBAR criminal violations can lead to felony charges if the taxpayer willfully fails to file the FBAR. If convicted, the taxpayer may face up to 5 years in prison for each violation, along with fines up to $250,000.
• FATCA criminal penalties: If the IRS proves willful noncompliance, such as intentionally failing to file the required forms, a taxpayer may face up to 5 years in prison for each charge, depending on the nature and severity of the violation, in addition to the applicable fines.

Both FATCA and FBAR violations can carry serious consequences if the government determines that they were committed willfully and with the intent to evade taxes.

Can You Face Both FATCA and FBAR Criminal Charges?

Yes, you can face both FATCA and FBAR criminal charges.

Since FATCA and FBAR are separate laws, each with its own set of requirements, you can be subject to FATCA and FBAR criminal liability if you fail to comply. The IRS may pursue criminal charges for each violation independently.

Defense Strategies in FATCA Criminal Investigations

When under a FATCA criminal investigation, several key FATCA criminal defense strategies can be used to avoid prosecution or minimize penalties:

• Controlling Communication: When contacted by the IRS Criminal Investigation Division (CI), all communication should be handled by legal counsel. This ensures that no incriminating statements are made and allows the lawyer to control the flow of information.
• Invoking Constitutional Rights: A defense attorney may invoke the Fifth Amendment right against self-incrimination, protecting the taxpayer from providing potentially damaging testimony or documents during the investigation.
• Challenging Willfulness: The IRS must prove beyond a reasonable doubt that the taxpayer acted willfully to evade taxes. A strong defense is showing that the failure to comply was unintentional, possibly due to misunderstanding the complex tax law or making a genuine mistake.
• Reliance on Professional Advice: If the taxpayer relied on a qualified tax professional or accountant for advice, it can be a defense. This shows that they acted in good faith based on expert guidance and disclosed all necessary information.
• No Tax Deficiency: The defense can challenge the IRS’s calculations, using forensic accountants to prove that no additional tax was owed, which weakens the criminal case against the taxpayer.
• Voluntary Disclosure: If the taxpayer comes forward before the IRS starts its investigation, the FATCA voluntary disclosure program can help avoid criminal prosecution. However, penalties and back taxes still need to be paid.
• Challenging Evidence/Procedure: The defense can scrutinize the government’s evidence and the procedures used in the investigation, such as checking for illegal searches or expired statutes of limitations, to suppress evidence or have charges dismissed.

When to Contact a Criminal Tax Attorney?

If you are being investigated by FATCA or starting to worry about criminal liability, you should contact a FATCA criminal lawyer now. And if you feel that the investigation may be moving in the direction of criminal charges involving willful tax evasion, an attorney can help walk you through this process.

It is really very important to contact a lawyer in the following situations:

• The IRS is investigating your motives, and it has gone beyond just looking at your papers to asking whether you intended to commit a crime.
• The investigation has widened to cover multiple years, individuals, or businesses connected to your taxes.
• You are in doubt as to what to do next, and you want someone to clarify your choices and the best way to deal with the problem.

A criminal tax attorney will make sure that you don’t commit any errors at first place and that your rights are completely protected during the investigation.

Let Verni Tax Law Guide You Through FATCA Issues

If you’re facing FATCA violations or struggling with foreign asset reporting, you need someone who truly understands the rules and complexities. Anthony N. Verni, with his unique experience as both a tax attorney and CPA, is well-equipped to guide you through every step of the process. He knows what you’re up against and can help you find the right solutions.Contact Verni Tax Law today, and let us help you handle FATCA violations with confidence, clarity, and the support you need to move forward.

If you disclose everything truthfully and quickly, the IRS is less likely to pursue criminal charges.