The tax laws contain what is known as a statute of limitations. The statute prescribes the length of time permitted to the IRS to enforce the tax rules. If the length of time runs out for a particular tax year, then the IRS is forever barred from claiming that you owe more tax in that year. It is important to understand how the various statutes of limitations work, because in certain cases, the statute of limitations will be longer than others or it will not start to run at all. There are often different SOL time periods for civil versus criminal actions. You can learn more about the various tax related SOL in my earlier blog posting here.
How does the SOL Work for FBAR Purposes?
The Internal Revenue Manual at IRM Section 4.26.17.5.5.4 provides a good summary of bullet points on the topic. These are elaborated upon, below:
The Title 26 statutes of limitations do not apply to FBAR cases. Title 26 refers to a particular Title in the United States Code; Title 26 contains the Internal Revenue Code.
The statute of limitations on assessment of civil FBAR penalties is 6 years from the date of the violation. Typically, the date of the violation is the date when an accurate and complete FBAR being due, is not received by the Treasury (i.e., June 30 due date. This refers to June 30th of the year following the calendar year for which the foreign financial account should be reported.). It is very important to note that unlike the case of tax returns, the FBAR SOL “clock” does start to “tick” (the SOL time period begins and continues to run) even if the taxpayer has not filed the FBAR (FinCen Form 114). Therefore, a US person with an FBAR filing duty, might just get lucky and win the audit lottery simply by waiting for the 6-year SOL to run on the old, unfiled FBARs. By filing prospectively, such a taxpayer can become FBAR compliant merely by the passage of time. The question arises whether the SOL is tolled or suspended if the taxpayer is outside of the US? More on this below.
The statute of limitations for FBAR criminal penalties is 5 years from the date the offense is committed. The period of limitation for FBAR criminal penalties is the general criminal statute of limitations contained in 18 U.S.C. Section 3282 which provides that except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any non-capital offense, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed. The question arises whether the SOL is tolled or suspended if the taxpayer is outside of the US? More on this below.
The statute of limitations on collection of civil FBAR penalties is 2 years beginning on the later of (i) the date the penalty was assessed; or (ii) the date any judgment becomes final in any criminal action under section 5322 in connection with the same transaction with respect to which the penalty is assessed.
FBAR civil statutes of limitation on assessment and collection may be waived. The IRS currently does not have any special procedures for soliciting waivers of the statute of limitations on assessment of the FBAR penalty, but those who have entered any of the various IRS Offshore Voluntary Disclosure Programs (OVDP), have routinely executed such waivers of the FBAR SOL. See here and here.
Can the FBAR SOL be “Suspended” While the Person is Outside the US?
This is a very interesting question and one should ask whether the FBAR SOL can be suspended for both criminal and civil matters. On the civil side, no tolling of the SOL will occur, so all the expats living abroad do indeed have a chance to win the FBAR audit lottery with regard to unfiled late FBARs. On the criminal side, the issue is murky. As mentioned, the period of limitation for FBAR criminal penalties is contained in the general criminal statute of limitations found in the general criminal code, Title 18 U.S.C. at Section 3282. Section 3290 of Title 18 provides that “No statute of limitations shall extend to any person fleeing from justice.”
One issue involves whether Section 3290 can apply in the FBAR context. It is unclear if Section 3290 applies to crimes outside Title 18, such as the FBAR crime which is found in Title 31. It would make sense that Section 3290 would apply in the FBAR scenario since the FBAR criminal penalty is governed by the Title 18 SOL. Cases involving immigration issues and drug crimes have held Section 3290 to be applicable. See United States v. Rivera-Ventura, 72 F.3d 277, 284 (2d Cir. 1995) and United States v. Jeffrey A. Greever, No. 96-3953 (6th Cir 1998).
Another issue involves what is meant by “fleeing from justice”? Will the statute of limitations be tolled (suspended) merely because the defendant is residing outside the US, as is typical in the case of expatriates? Or, must the defendant have an intent to avoid prosecution or arrest rather than simply being absent from the jurisdiction? The minority view is that mere absence from the jurisdiction is sufficient to toll the statute. However, more modern and prevalent case law supports the view that the government must prove that the defendant concealed himself with the intent to avoid prosecution. See United States v. Fowlie, 24 F.3d 1070 (9th Cir.1994); United States v. Catino, 735 F.2d 718, 722 (2d Cir.1984); United States v. Gonsalves, 675 F.2d 1050, 1052 (9th Cir.1982); United States v. Ballesteros-Cordova, 586 F.2d 1321, 1323 (9th Cir.1978); United States v. Wazney, 529 F.2d 1287 (9th Cir.1976). Thus, mere absence from the US (regardless of intent) is not enough to toll the criminal SOL for FBAR violations.
What about the SOL for Tax Crimes Unrelated to FBAR?
When tax crimes (such as tax evasion or fraud) under Title 26 are involved, merely being outside the US regardless of intent, is indeed sufficient to toll the SOL. See IRC Section 6531 which provides:
The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings.
Thus, expatriates abroad with criminal tax issues should not rest easily even with the passage of time.
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