Southern California Foreign Bank Account Attorneys

If you are a U.S. person and have foreign financial accounts with an aggregate value exceeding $10,000 at any time during the year, you must electronically file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), by April 15 each year. If you miss this deadline, an automatic extension is granted until October 15; no separate request is required. Taxpayers who fail to disclose foreign bank accounts can face substantial civil penalties enforced by FinCEN and, in serious cases, criminal prosecution coordinated with the IRS. However, it is crucial to understand that criminal charges usually stem from willful actions, not innocent mistakes.

Over the past decade, the federal government has significantly increased enforcement efforts related to undisclosed foreign bank accounts and offshore financial assets. If the IRS determines you have a duty to disclose and has learned that you have not disclosed offshore or foreign bank accounts, they could assess significant tax penalties. While our team of tax attorneys and certified public accountants can argue for penalty abatement on your behalf, it is better to be proactive to avoid these burdensome penalties from accruing on your account.

Offshore Bank Accounts? What Happens If You Fail to Disclose?

When U.S. citizens or residents fail to disclose offshore financial accounts, they face high-stakes enforcement actions from the government. Since 2010, the “secrecy” of offshore banking has changed due to international transparency laws.

These are the consequences that can occur if you fail to disclose those accounts, how the government tracks them, and the actions taken against you if they are later discovered.

How Does the Government Find Undisclosed Accounts?

The IRS and the Department of Justice no longer rely solely on self-reporting. They use an interconnected data network to identify hidden assets.

FATCA Reporting: Under the Foreign Account Tax Compliance Act, financial institutions in over 100 countries are required under FATCA to report U.S. account holder information either directly to the IRS or through their local tax authorities under international reporting agreements. If your bank reports you and you don’t file, the discrepancy triggers a red flag.
A “John Doe” Summons: The IRS can issue legal orders to U.S. “correspondent” banks (banks that process wire transfers for foreign institutions). This allows the government to see every dollar moving into or out of specific foreign banks, which leads them to individual account holders.
Whistleblower Programs: The IRS may award whistleblowers between 15% and 30% of amounts collected when the information leads to successful enforcement actions against individuals, including bank employees or ex-spouses, who provide information regarding undisclosed offshore accounts.
Data Mining & AI: The IRS uses advanced data analytics to scan tax returns (Schedule B) for patterns that suggest offshore activity, such as foreign tax credits or income from foreign entities that are not tied to a disclosed account.
Treaty Exchanges: The U.S. has bilateral Tax Information Exchange Agreements (TIEA) with dozens of countries, allowing them to request specific records if an investigation is initiated against you.

What Happens When an Account is Found?

Once the IRS detects an undisclosed account, enforcement typically begins with notices or audits rather than immediate penalties. These initial steps inform the taxpayer of the issue and offer a chance to resolve it. However, persistent noncompliance can trigger more serious enforcement measures. In many cases, this process involves a specialized civil audit, often referred to as an “Offshore Audit,” during which an IRS examiner will assess whether the failure to report was “Willful” (intentional) or “Non-Willful” (a mistake).

What Are The Financial Penalties

Non-Willful: Civil penalties for non-willful FBAR violations are subject to statutory inflation adjustments and are generally capped per violation per year, though recent court rulings often limit non-willful penalties to a single annual assessment depending on the facts of the case, depending on the facts and applicable legal authority.
Willful: For willful FBAR violations, the IRS may impose a civil penalty of up to 50% of the highest aggregate balance of the foreign accounts, subject to statutory limits and current enforcement guidance. Over a few years, the penalties can easily exceed the total value of the account.
FATCA Form 8938 Penalties: Separate from bank reporting, failing to timely file Form 8938 (Statement of Specified Foreign Financial Assets) may result in an initial penalty of up to $10,000, with additional penalties for continued noncompliance, subject to reasonable cause exceptions.
Criminal Investigation: If the IRS believes you acted to hide the money with the goal of tax evasion, they can refer the case to the Criminal Investigation (CI) division.
Passport Revocation: Under federal law, the State Department can revoke or deny a passport to any individual with “seriously delinquent” tax debt (generally exceeding $62,000 (adjusted annually for inflation)).
Prison Time: In rare cases involving intentional misconduct, criminal prosecution for tax evasion or willful FBAR violations may be pursued, which can carry significant fines and potential imprisonment under federal law.

Dallo Law Group: Proactive, Professional Legal Help

If the IRS finds the account before you disclose it, you generally lose your eligibility for “Streamlined” or “Voluntary Disclosure” programs, which could work to reduce penalties.

Offshore Voluntary Disclosure Program (OVDP), Foreign Bank Account Disclosure (FBAR), Streamlined Disclosure Program

While many taxpayers historically used the IRS Offshore Voluntary Disclosure Program (OVDP) to resolve undisclosed foreign accounts, that program ended in 2018. Today, the IRS uses the Voluntary Disclosure Practice (VDP), along with other compliance options such as Streamlined Filing Compliance Procedures, depending on the taxpayer’s circumstances.

At Dallo Law Group, we have the training and experience to determine whether the Voluntary Disclosure Program is the right path for you. All conversations with our team are confidential and protected by attorney-client privilege. If the program is appropriate, we can guide you through this highly sensitive and complex process with expertise and care.

What is the OVDI, and does it affect Southern California Taxpayers?

The Offshore Voluntary Disclosure Initiative (OVDI), later known as the Offshore Voluntary Disclosure Program (OVDP), was a former IRS program that allowed taxpayers to disclose undisclosed foreign accounts. That program has been discontinued. Today, taxpayers must rely on the IRS Voluntary Disclosure Practice or other disclosure options based on whether their conduct was willful or non-willful.

While voluntary disclosure may significantly reduce the risk of criminal prosecution, the IRS does not guarantee immunity. Each case is evaluated individually based on the taxpayer’s facts, intent, and level of cooperation. The IRS OVDI has changed tremendously over the years, aiming to help taxpayers. The former OVDI and OVDP programs have been discontinued, and taxpayers today must rely on the IRS Voluntary Disclosure Practice or Streamlined Filing Compliance Procedures based on their specific circumstances. Consult with a tax attorney to discuss the program, its features, risks, and alternatives.

What are the Penalties for Failing to Disclose Offshore Bank Accounts?

Offshore bank account penalties are calculated annually and can often exceed the balance in foreign bank accounts. This penalty is commonly called the FBAR penalty. In willful cases, the civil FBAR penalty may reach up to 50% of the highest annual aggregate account balance, while non-willful violations are subject to significantly lower statutory limits in foreign bank accounts. Furthermore, if the government determines that failure to report offshore bank accounts was willful, the government may seek to impose severe criminal penalties against the taxpayer. Due to the sensitive nature of this area, legal representation is absolutely necessary, and our team of highly trained tax attorneys is ready to assist.

Who Needs to Comply with FBAR and Foreign Asset Reporting Requirements?

Generally speaking, if you are a U.S. citizen, U.S. resident, or any individual classified as a U.S. person for tax purposes, including certain visa holders and lawful permanent residents, you have a duty to disclose offshore bank accounts to the IRS and are subject to penalties for failing to disclose those assets. Collection and penalties have dramatically increased over the years, so this is not an issue to be taken lightly. Penalties can be devastating for those who fail to report or pay taxes voluntarily. Compliance and help with your disclosures are key in this situation.

As a trusted firm, Dallo Law Group can help you navigate the Voluntary Disclosure Practice (VDP), Streamlined Filing Compliance Procedures, or FBAR reporting process, while negotiating with the IRS to minimize potential penalties. We have guided numerous clients through these complex procedures and consistently achieved favorable outcomes.