Wednesday, September 25, 2013

How's That For Cute And Cuddly?

You've probably already heard about Ty Warner's tax problems and that the Beanie Babies creator plead guilty to tax evasion. But that isn't the half of it.

Not even close.

The amount of income tax he failed to pay is $885,300 on unreported income of $3,161,788 according to the Department of JusticeThat's less than a million dollars. So, how did he end up owing another $52 million?

Because he didn't file his FBAR.
U.S. persons having a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account may be required by the Bank Secrecy Act to report their interest in the account to the IRS by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). A U.S. person may have a reporting obligation even though the foreign financial account does not generate any income.
Reminder: FBAR Filing Due by June 30 | Forbes
This Forbes article, Beanie Babies Founder Ty Warner To Pay $53M For Offshore Tax Evasion, provides a much better explanation of what penalties Mr. Warner is paying. It's not just tax evasion, it's the non reporting of the existence of the foreign account, whether it makes any money or not:
. . . when it comes to penalties, FBAR charges and penalties . . . are the real gravy train for the government.
. . . A willful failure to file an annual FBAR can trigger a civil penalty of up to 50% of the amount in the account at the time of the violation.
That's serious dough. The account in question - the one that generated the aforementioned $3 million in income - was in the neighborhood of $100 million dollars. And fifty percent of that is - bingo! - a whole lot of gravy.

Just so you know:
Who Must File an FBAR. A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
General Instructions Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts

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