There are two types of FBAR violations for non-reporting offshore accounts: willful and non-willful and the IRS imposes very different penalties for each one. To put this into perspective:
1. A willfulness penalty is the greater of $100,000 OR 50% of the balance in the foreign account at the time of the violation.
2. A non-willful violation leads to a maximum penalty of $10,000.
What Am I Supposed to Do During an FBAR IRS Audit?
First off, the IRS is sending a clear message to the public. They are taking FBAR violations as serious and they will be using the case law as a tool during examinations.
Taxpayers who might want to convince the IRS revenue agent that their failure to report a foreign bank account was unwillful will face these judgments above head on.
1. The IRS agents will be fully cognizant of these court cases.
2. The IRS agents will rely on these judgments to support their position
Put differently, deniability in the form of ignorance of the FBAR obligation or insisting that you did not read or comprehend the tax return properly will in all probability not bring relief to anyone pinned in this position.
The key to turning these kinds of cases around is a clear understanding of what willfulness means in legal terms coupled with a clear understanding of what the government must produce to meet the required burden of proof.
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