Can You Just Close Foreign Bank Accounts to Not File FBAR?

Can You Just Close Foreign Bank Accounts to Not File FBAR?

Can You Just Close Foreign Bank Accounts to Not File FBAR: While just closing your previously undisclosed foreign bank accounts would make your life easier, the US Government (unfortunately) does not want to make your life easy. The FBAR is used to Report Foreign Bank and Financial Accounts to the US Government each year by filing a FinCEN Form 114. FinCEN refers to the Financial Crimes Enforcement Network — and the Internal Revenue Service is the agency tasked with enforcing FBAR fines and penalties. There is a six year statute of limitations on FBAR Filing, which is why the Internal Revenue Service moves swiftly to assess and enforce penalties for non-filing. So what happens if a US Person just decides to close their foreign bank account in order to avoid filing the FBAR? Due to the aggressive enforcement tactics used by the US government just closing a foreign bank account without filing FBAR is not a preferred strategy — and here are five reasons why:

Closing Foreign Bank Accounts Does Not Prevent Reporting

More than 110 foreign countries and more than 300,000 foreign financial institutions have agreed to report US Account Holders to the Internal Revenue Service in accordance with FATCA. Therefore, simply because you closed the account it does not mean the Foreign Financial Institution will not report you as being an account holder in either the current or prior years.

Willfulness FBAR Concerns

If a person knowingly closes their foreign bank account simply to avoid filing the FBAR, the Internal Revenue Service may take that as a willful omission for reporting in prior years in which the account was opened but that the Taxpayer did not properly file. More specifically, if a Taxpayer closes the account to avoid future FBAR Filing, it may presume they are aware that they should have filed in prior years — and by knowingly not reporting in the prior years that is a form of quiet disclosure.

Willful FBAR Penalties are Tough

If the Internal Revenue Service believes that the foreign bank account was closed solely to avoid filing FBAR in current and past years — it may result in willful penalties. As far as foreign bank and financial account reporting penalties go — willfulness penalties are some of the worst, and can result in significant fines and penalties that are harder to abate or remove than their non-willful counterpart.

Wire Transfer Audits & Closing Foreign Bank Accounts

When a taxpayer closes the account and transfers the money back to the United States or another foreign country, it may result in a wire transfer audit which can result in an examination by the Internal Revenue Service regarding the movement of money. If this leads the US government to learning that the FBAR was not filed — it could lead to some pretty rough penalties.

Reverse Eggshell Audit & Closed Foreign Bank Accounts

This is a very dangerous IRS Tax Audit situation which is best explained by a simple example. David has a foreign bank account which he closes solely because he doesn’t want to file FBAR — but knows he should have filed in prior years. Unbeknownst to David, the foreign financial institution reports David to the Internal Revenue Service who then audits David on a separate, unrelated matter. David doubles down on the fact that he does not have any foreign accounts and makes intentional misrepresentations to the examiner — because David does not know the examiner already has the information from the foreign financial institution. This may lead to an IRS Special Agent Investigation, willfulness penalties — and fraud.

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