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Leniency for FBAR Violators

Much has been made of the government's recent crackdown on secret offshore bank accounts. Despite making the enforcement of these reporting requirements a top priority, courts have been handing out relatively lenient sentences for violators.

Over the past four years, at least 71 taxpayers have been indicted for failing to disclose the existence of foreign financial accounts. About three-quarters of these taxpayers pleaded guilty. Of those who did not plead guilty, nearly all were convicted at trial. However, the average sentence handed down in these cases has been less than 15 months, which is relatively low compared to sentences for other tax crimes.

The latest sentence came in the case of Mary Curran, a wealthy 79-year-old widow from Florida. She inherited secret foreign accounts containing $40 million from her husband and was told by European advisors not to disclose the accounts to the United States. She tried to enter the Offshore Voluntary Disclosure Initiative in 2009, but was rejected by the IRS. She was ultimately indicted in 2011. After pleading guilty, she faced up to 37 months in prison. At sentencing, Judge Kenneth Ryskamp scolded prosecutors for pursuing the charges and refused to sentence Curran to any time in prison. Despite the leniency at sentencing, she will live the rest of her life as a convicted felon.

While relatively low, most would still consider a sentence of 15 months in prison to be very significant. This also does not take into consideration the huge sums of penalties and interest paid by the defendants. The government's extremely high conviction rate in these cases is one thing for those with undeclared offshore accounts to be concerned about. Further, since judges have a great deal of discretion in sentencing, the sentence that a defendant receives can vary greatly depending on which judge a case is assigned to.

The government's primary concern seems to be future compliance, as evidenced by the popular Offshore Voluntary Disclosure Program. Under this program, taxpayers can come forward with their unreported foreign accounts and pay a civil penalty in exchange for immunity from prosecution. More than 39,000 taxpayers have already participated in the program since 2009. As part of the program, taxpayers pay a penalty worth 27.5% of the maximum balance in foreign accounts for one year. If this amount is too high, taxpayers can choose to opt out of this settlement structure in favor of a traditional audit. Only an experienced tax attorney can advise you as to what is the best option for your particular situation.

To learn more about Offshore Voluntary Disclosures or about representation from Brown, PC, please visit us online or contact the firm at 888-870-0025.

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