Why Americans Shouldn’t Cheat on Taxes & FBAR

Why Americans Shouldn’t Cheat on Taxes & FBAR

In general, most Americans do not like paying taxes to the IRS. No matter what a person’s progressive tax rate is, they will usually think at the end of the day that they are paying too much tax –– and oftentimes they are correct. In fact, some countries do not even tax individuals on their earned or passive income. Conversely, other countries have a much higher tax rate than the United States, so it should all be taken in stride. With that said, taxpayers should be careful before cheating on their US tax returns. By cheating on their tax returns, taxpayers may become subject to excessive fines and penalties in addition to a potential criminal investigation. Let’s go through five (5) reasons why a person may want to avoid cheating on their taxes.

Civil Fraud Penalties & Unlimited Statute-of-Limitations

If a person cheats on their taxes and the IRS uncovers a fraudulent tax return, they could become subject to a significant amount of penalties. That is because there is no statute of limitations for civil tax fraud. In other words, a taxpayer may become subject to several years of fraud-related penalties, more than just the general 3- to 6-year statute of limitations.

Willful FBAR

If a person has Foreign Bank and Financial Accounts and intentionally misrepresents or fails to file their FBAR (Foreign Bank And Financial Account Reporting, FinCEN Form 114), they could be become subject to willfulness penalties. When it comes to assessing willful FBAR penalties, the US government may issue a 50% penalty against the maximum account value of each foreign account that goes unreported, for each year – usually up to 100% value for the compliance period.

Criminal Investigation

In addition to potential civil violations, the US government may also refer the matter to the IRS Special Agents to pursue a criminal investigation. Depending on the outcome of the criminal investigation, a taxpayer may become subject to criminal prosecution — which may result in incarceration in addition to very high fines and penalties.

Seizure, Levy, Lien, and More

If a person is under fraud or other investigations for cheating on taxes, then even before penalties are assessed, the IRS may pursue a seizure of assets and money. While seizures are not common, once penalties are assessed, the IRS can also go after the taxpayer for a lien and levy — as well as potential passport denial or revocation. This may have a significant impact on a taxpayer’s ability to move assets or travel around the globe.

Future Employment & Business Loans

If a person becomes subject to civil and criminal fraud penalties (and possibly tax evasion and other crimes), it can have a significant impact on their overall ability to function in society. It may impact their ability to move assets, as well as to find gainful employment or obtain necessary business loans in order to move forward in their life after they become subject to penalties or complete their incarceration.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance.