If you own a foreign bank account, you have to declare it with your tax returns each year. In your 1040, there is a crucial question in Schedule B, “Do you have a foreign bank account, Yes or No?” that requires you to answer by checking the appropriate box. Not checking or checking the wrong box brings dire consequences. In addition, if one or more of your foreign accounts contain at least $10,000, you have to file a Foreign Bank and Financial Account Report (FBAR).
If you’re thinking of ignoring the question and leaving the boxes unchecked, don’t try it. If it is proven that you did so willfully, you will face severe penalties. And you cannot plead ignorance, either. The IRS views any conscious effort to avoid learning about FBAR reporting as “willful blindness”. If you have foreign accounts you are expected to read the information the IRS gives in its tax forms and instructions.
Not learning about filing requirements together with efforts to hide the existence of foreign accounts may be stipulated as willful act. Although just by checking the wrong box, or not checking any box on a Schedule B is not enough, by itself, to establish that the FBAR violation was because of willful blindness, nevertheless, by doing so you are treading on thin ice.
In a landmark case, United States versus Williams, the Court of Appeal reversed the decision of the district court that found the defendant, Mr. Williams not guilty of willful blindness when he checked the “no” box and failed to submit his FBAR. Further evidence against the defendant was the fact that Williams pleaded guilty to charges of tax evasion. Although Williams admitted to dodging taxes, it was not clear that he knew about the requirement to file FBARs. But the Appellate court decided that evading taxes meant he would have known about the FBAR requirement and was thus found guilty of willfully not submitting his FBAR.
The case of United States versus Williams may result in worse FBAR-related punishments. So the conclusion is if you have any foreign bank accounts, you have to declare them and submit your FBAR to avoid any penalty. If you have not been doing so over the years, the only recourse you have is to participate in the IRS’ Offshore Voluntary Disclosure Initiative that allows you to pay up back taxes plus interests and penalties but without being charged in a criminal court.