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Executive loses IRS battle over offshore account unfiled reports

In a previous post we reminded our California readers that June 30 was the deadline to file their Report of Foreign Bank and Financial Accounts, or FBAR, to the Internal Revenue Service. The report is required for anyone with more than $10,000 in a foreign or offshore account.

Offshore accounts have been in the news lately, and for good reason. The IRS is stepping up collection efforts for those who shelter funds in other countries as a tax avoidance measure. The FBAR is an IRS form that seeks to identify these funds. Failure to file can result in penalties and interest.

According to reliable sources, a non-willful or mistaken lack of an FBAR filing can result in a $10,000 fine. However, a willful lack of an FBAR filing can result in a $100,000 fine. Recently a former Mobil Oil executive lost a battle with the IRS in which the agency charged the executive of willful non-filing for the 2000 tax year. Apparently the only year the executive has filed all of the necessary forms was in 2007.

It seems that the executive lost his appeal due to a previous plea of guilty for tax fraud related to the same offshore accounts. Two of the three appeals judges stated that the executive could not reasonably claim that he did not know of the filing requirement for the offshore accounts. There is a "yes" or "no" check box on individual taxpayers annual tax forms that asks if the taxpayer has financial accounts in foreign countries. The FBAR would be filed if the taxpayer checks the "yes" box and has assets greater than $10,000 in the accounts.

The IRS could not go back any further than the year 2000 for the former Mobil executive due to statutes of limitations, and is seeking two $100,000 fines for the 2000 tax year. The account apparently earns about $800,000 annually in interest. There was no word on the account's current value.

This IRS dispute points out the importance of accurate and timely filing of all reports.

Source: Reuters, "Ex-Mobil executive loses offshore tax fight with IRS," Lynnley Browning, July 23, 2012

At our California law firm we assist our clients with IRS disputes related to offshore accounts and other issues.

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