Often individuals who have not filed Foreign Bank Account Reports (FBAR’s) express concern that filing the report will cause them to lose Supplemental Security Benefits, (SSI) and similar benefits from state agencies. It is for these reasons that some individuals refuse to move forward to compliance once they are advised by professional of their filing obligations. Such failure to comply may pose serious risks for the individuals who are often dual nationals or permanent residents (Green Card holders).
SSI rules, provide that individuals receiving benefits may have only limited resources, including $2,000 for single persons and $3,000 for couples. Other assets can be owned, like a home, but the purpose of this comment is not to discuss SSI, it is to discuss FBAR filing laws and penalties for not filing.
Some individuals receiving SSI benefits have foreign financial account which require FBAR reporting. The Bank Secrecy Act (BSA) provides that an FBAR is required to be filed and received by June 30 of the each subsequent year for U.S. persons who have foreign financial accounts which aggregate $10,000 or more in the calendar year. The Internal Revenue Code , as of 2011 tax returns, requires the filing of Form 8938 if a taxpayer has Specified Foreign Financial Assets in excess of $50,000 at year end (for individuals) $100,000 for couple, living in the U.S. SSI recipients may not be filing returns as they may not be required to file. Individuals are required to file income tax returns if their income is $9,350 or more and couples filing jointly have income of $18,700 or more. The limits are slightly higher for persons age 65 or over. By not reporting their foreign financial accounts and income from those accounts, SSI recipients may be obtaining SSI benefits when they otherwise would have been ineligible based upon the resource limit and income limits. Such conduct may be grounds for assertion of “willfulness” penalties under the BSA and false statement crime assertions in SSI eligibility claims, in addition to potential willful failure to file and willful failure to pay income tax penalties.
The combination of potential civil and criminal penalties can be mitigated by a variety of measures including the Offshore Voluntary Disclosure Initiative of 2012 (OVDI). By entering the OVDI program the SSI recipient with unreported foreign financial assets, can limit penalties and “come clean” on unreported income. Further, under recent case law permanent residents convicted of tax evasion,(false statement crimes) can be deported. This strategy needs to be coupled with SSI disclosure to avoid continuing SSI false claims.
While other strategies may be open to discussion, the risk/benefit of taking action needs to be carefully weighed. Foreign financial institutions are reviewing their account databases to find all U.S. persons in order to comply with provisions of the Foreign Account Tax Compliance Act (FATCA). The result is many U.S. dual nationals and permanent residents are receiving communications from their foreign banks requesting proof of U.S. FBAR compliance and advising those account holders that their account information will be disclosed to the IRS.
Hiding is no longer a option nor is continuing the misrepresentation of SSI eligibility or eligibility for state agency benefits.