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¿Violaciones intencionadas o menos? Todo está en tu mente

Por Orlando Gotay, Fiscal Fiscal

I just came across the case of an expat in México’s Foreign Bank Account Report (FBAR) penalty. US persons with ownership or control over a foreign financial account valued at any time over US$10,000 dollars must report those accounts annually to the US Treasury.

Special scorn is reserved for “willful” nonfilers: the greater of US$100,000 or 50 percent of the value of the account. It is important to understand what triggers this penalty.

How do they detect a willful nonfiler? Willfulness is a state of mind. Knowing you have to do something and choosing not to or being “willfully blind” all counts. The IRS does not have a mind-reading machine. Deeds do the work for them.

The gentleman in our case had successful businesses in México, a large burger franchise and real estate developments in San Miguel de Allende and Guadalajara, establishing entities in the Bahamas and later Belize for the latter. He opened a Swiss account in the name of the entity but took steps so that the investments in that account would not consist of US securities. His statements were not delivered to him, but to his accountants. He and his wife were listed as sole signatories and would often transfer large amounts to a Banco Monex account in México.

When the IRS began investigating unreported Swiss accounts, our gent began moving money out of the Swiss account. His name was turned over by the bank, and he was audited. By then he had filed late FBARs. The audit revealed he had significantly under-represented account balances in FBARs and had failed to report income on his tax returns.

The court found he did not tell the truth as to many aspects of his story. It found he was a sophisticated businessman: “Having operated businesses in México for nearly three decades, [he] has developed a detailed understanding of his personal and corporate tax obligations—and how to avoid them.”

If you don’t tell your accountants about foreign financial accounts, or if they remind you to disclose them and you don’t, that also goes into the “willful” side. That happened to our gent too. “A defendant’s failure to inform his accountant about the existence of a foreign account is a strong indicator of a conscious intent to violate the law.”

Stitch it all together: if it looks like you knew what you were supposed to do, and you did not do it—that, ladies and gentlemen, is FBAR willful nonfiling.

 

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to federal and state tax matters of US expats in México. He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer. This is just a most general outline. It is informational only and not meant as legal advice.

 

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