Manafort’s FBARs

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By Orlando Gotay, Tax Attorney

I am glad I got a little delayed in writing this week as I got the benefit of reading the indictment of Paul Manafort. He got charged with several crimes but, of course, I want to highlight the alleged violations of the Foreign Bank Account Report laws.

FBARs are required to be filed by US persons when they own or have signature authority over a foreign financial account if its value exceeds $10,000 at any moment during the year. If there is more than one account and the total (aggregate) value at any moment exceeds $10,000, there is a reporting requirement. This, of course, is oversimplification, but you should know that if you are a US person with a financial account outside the US and a balance near $10,000 you should be keeping an eye on the FBAR reporting requirement. The “signature authority” part is important. If you can control the movement of funds within foreign accounts, there is a filing requirement even if the account is not yours—accounts in the names of entities, corporations, homeowner’s associations, partnerships, trusts, employers, or even if your foreign spouse allows you to sign.

There are both civil and criminal penalties at stake when these reports are not filed in a timely way. Whether they are one or the other depends on the facts, hinging mainly on whether a person acted “willfully.” This means failure to carry out a known legal duty. Since we can’t go inside people’s heads to see if a failure was “willful” (or if they knew), external indications become relevant in figuring this out.

It is said Mr. Manafort lied to his return preparer when asked about foreign bank accounts. Not only that: he went through all kinds of schemes, it is said, to use foreign cash to get stateside cash (via real estate financing) that did not have to be explained. When schemes to conceal are detected, as here, it is difficult to say, “I did not know I had to file an FBAR.” Of course, the income in question also never made it into his tax returns, another bad thing. In his case, the lack of FBAR helped conceal the income but also his work as a foreign agent. If proved, he is in hot, hot water.

What can we learn here? Willful failure? Very bad. Non-willful? Less bad, still costly. Who gets to say which is it? It could be a jury, the IRS (in civil cases) or better, you, filing when required.

 

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the federal and state tax matters of US expats in Mexico. He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer.

 

 

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