Confusion arises when interpreting the Bank Secrecy Act
Tax laws are notoriously complicated and confusing. Average taxpayers rarely have a solid grasp on what they need to know, and in some cases, it takes the U.S. Supreme Court to interpret these laws.
For instance, the Bank Secrecy Act has been in place since 1970, but interpretive problems still arise 50 years later.
A $2.67 million distinction
A case before the Supreme Court involves an individual who reportedly failed to file a Report of Foreign Bank and Financial Accounts (FBAR).
The IRS requires individuals to file an FBAR if they have a financial interest in at least one financial account outside the United States if there is more than $10,000 in those foreign financial accounts at any point during the tax filing year.
In this case, the issue before the courts is not whether the taxpayer filed the form. It is whether his failure to do so for five years amounts to failing to file a single form during those years or failing to report his numerous accounts during those years.
In other words, the court is determining whether his actions equate to five violations of the Bank Secrecy Act (one for each year he didn’t file a report) or 272 omissions made in those five years. The distinction is significant, as each violation of the Bank Secrecy Act can trigger penalties of up to $10,000. The court’s ruling will determine whether he pays $50,000 in fines or $2.72 million.
Avoiding similar situations and fines
The most effective way to sidestep this type of situation and these massive fines is to file an FBAR if the law requires you to do so. If you are not sure whether you must file an FBAR or you are not sure what you must include with those reports, seeking help from a professional tax preparer or an attorney can help you understand your duties.
However, as this recent case highlights, tax laws and requirements are not always as clear as we would like. People can be unsure of what they must do and what the cost of a violation may be. Unfortunately, these oversights can have massive consequences, so it can be crucial to get help if you have foreign bank accounts.