by Fresh Start Tax | Aug 26, 2013 | Expatriate Tax, FBAR
IRS Opens Online FATCA Registration System
The Internal Revenue Service today has opening of a new online registration system for financial institutions that need to register with the IRS under the Foreign Account Tax Compliance Act (FATCA).
Financial institutions
Financial institutions that must register with the IRS to meet their FATCA obligations can now begin the process of registering by creating an account and providing required information.
Financial institutions will also be able to provide required information for their branches of operation and other members of their expanded affiliate groups in which the financial institution is the lead organization.
The registration system, designed to enable secure account management, is a web-based application with around-the-clock availability.
Within a secure environment, the new registration system enables financial institutions to:
1. establish online accounts;
2. customize home pages to manage accounts;
3. designate points of contact to handle registrations;
4. oversee member and/or branch information; and
5. receive automatic notifications of status changes.
Financial institutions are encouraged to become familiar with the system, create their online accounts and begin submitting their information.
Starting in January 2014
Starting in January 2014, financial institutions will be expected to finalize their registration information by logging into their accounts, making any necessary changes and submitting the information as final.
As registrations are finalized and approved in 2014, registering financial institutions will receive a notice of registration acceptance and will be issued a global intermediary identification number.
The IRS will electronically post the first IRS Foreign Financial Institution
The IRS will electronically post the first IRS Foreign Financial Institution (FFI) List in June 2014, and will update the list monthly.
To ensure inclusion in the June 2014 IRS FFI List, financial institutions will need to finalize their registrations by April 25, 2014.
If you need help with any foreign bank account issues are matters called professional staff today.
FATCA Registration System – Help with Foreign Tax Issues
by Fresh Start Tax | Aug 23, 2013 | Expatriate Tax, FBAR
Offshore Voluntary Disclosure Program Submission Requirements
If you need any help regarding offshore voluntary disclosure program submission requirements contact us today and speak to one of our expert tax professionals.
As a condition to being accepted into the Offshore Voluntary Disclosure Program (OVDP), applicants must provide the IRS the following for the eight year voluntary disclosure period. Yes, you read this right for 8 years.
1. All applicants.Copies of previously filed original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure.
2. All applicants.Complete and accurate amended federal income tax returns (for individuals, Form 1040X, or original Form 1040 if delinquent) for all tax years covered by the voluntary disclosure, with applicable schedules detailing the amount and type of previously unreported income from the account or entity (e.g., Schedule B for interest and dividends, Schedule D for capital gains and losses, Schedule E for income from partnerships, S corporations, estates or trusts, and, for years after 2010, Form 8938, Statement of Specified Foreign Financial Assets).
For taxpayers who began filing timely, original, compliant returns that fully reported previously undisclosed offshore accounts or assets before making the voluntary disclosure for certain years of the offshore disclosure period, copies of the previously filed returns for the corresponding years.
3. All applicants. Copy of your completed and signed Offshore Voluntary Disclosures letter and attachment.
4. All applicants. A check made out to the U.S. Treasury. The check must include the amount of tax, interest, and accuracy-related penalty under IRC § 6662(a), and, if applicable, the failure to file and failure to pay penalties under IRC § 6651(a) (the suspension of interest provisions of IRC § 6404(g) do not apply to interest due in this initiative).
If you cannot pay the total amount of tax, interest, and penalties as described above, submit your proposed payment arrangement and a completed Collection Information Statement ( Form 433-A, Collection Information Statement for Wage Earners and Self-employed Individuals, or Form 433-B, Collection Information Statement for Businesses, as appropriate).
5. All applicants. Completed Foreign Account or Asset Statement for each previously undisclosed foreign account or asset during the voluntary disclosure period if the information requested in that statement was not already provided in your initial Offshore Voluntary Disclosures Letter.
6. All applicants. Completed penalty computation worksheet showing the applicant’s determination of the aggregate highest account balance of his/her undisclosed offshore accounts, fair market value of foreign assets, and penalty computation signed by the applicant and the applicant’s representative if the applicant is represented.
7. All applicants: Properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.
8. All applicants disclosing offshore financial accounts:
Copies of filed Forms TD F 90-22.1 (FBARs) for foreign accounts maintained during calendar years covered by the voluntary disclosure. (You should file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the OVDP.
Through June 30, 2013, you may file electronically or by sending paper forms to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621. After June 30, 2013, you must file electronically.) If you are unable to file electronically, you may contact the FinCEN Regulatory Helpline at 800-949-2732 to request an exemption.
NOTE: Taxpayers filing FBARs electronically do not currently have the technological ability to include a statement explaining why the FBARs are filed late. Until such time that they have the ability, it is sufficient to file the FBARs electronically, retain the statement, and submit the statement to the Service upon request.
9. All applicants disclosing offshore financial accounts: For those applicants disclosing offshore financial accounts with an aggregate highest account balance in any year of $500,000 or more, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure.
Explain any differences between the amounts reported on the account statements and the tax returns. For those applicants disclosing offshore financial accounts with an aggregate highest account balance of less than $500,000, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure must be available upon request.
10. All applicants disclosing offshore entities: A statement identifying all offshore entities for the tax years covered by the voluntary disclosure, whether held directly or indirectly, and your ownership or control share of such entities.
11. All applicants disclosing offshore entities: When accounts or assets were held in the name of a foreign entity, complete and accurate amended (or original, if delinquent) information returns required to be filed, including, but not limited to, Forms 3520, 3520-A, 5471, 5472, 926 and 8865 for all tax years covered by the voluntary disclosure. If the applicant is requesting that the Service waive the information reporting requirement, the applicant should submit a completed and signed Statement on Dissolved Entities. (See FAQ 29.)
12. Estates and certain executors or advisors. If the applicant is a decedent’s estate, or is an individual who participated in the failure to report the foreign account, foreign asset, or foreign entity in a required gift or estate tax return, either as executor or advisor, provide complete and accurate amended estate or gift tax returns (original estate or gift tax returns, if not previously filed) for tax years covered by the voluntary disclosure necessary to correct the under reporting of assets held in or transferred through undisclosed foreign accounts or foreign entities.
13. Returns involving Passive Foreign Investment Company (PFIC) issues. A statement whether the amended returns involve PFIC issues during the tax years covered by the OVDP period, and if so, whether the applicant chooses to elect the alternative to the statutory PFIC computation that resolves PFIC issues on a basis that is consistent with the mark to market (MTM) methodology authorized in IRC § 1296 but does not require complete reconstruction of historical data. A description of this alternative method is included in FAQ 10.
14. Applicants with Canadian registered retirement savings plans (RRSP) or registered retirement income funds (RRIF) who wish to make late elections to defer U.S. tax on RRSP or RRIF earnings:
- A statement requesting an extension of time to make an election
- Forms 8891 for all tax years and type of plan covered under the voluntary disclosure
- A dated statement signed by the taxpayer under penalties of perjury describing:
- Events that led to the failure to make the election
- Events that led to the discovery of the failure
- If the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities.
Our firm is staffed with tax attorneys, tax lawyers, certified public accountants, and former IRS agents and managers.
Contact us today for a free initial tax consultation and we will be able to help you on any offshore matters you may have.
Offshore Voluntary Disclosure Program Submission Requirements
by Fresh Start Tax | Aug 8, 2013 | FBAR
We are a full service professional tax firm that specializes in FBAR professional tax services.
From the filing of FBAR, to FBAR audits, paying back taxes and civil and criminal FBAR defense we can help resolve your FBAR issues.
We are comprised of tax attorneys, certified public accountants, and former IRS agents, managers and tax instructors.
We have been practicing since 1982 and have an A+ rating by the Better Business Bureau.
Fresh Start Tax llc has over well over 300 years of professional tax experience dealing with the simplest of cases to Tax Court representation.
There are many excellent professional tax firms that specializes in FBAR tax service and we believe we are among them.
As a Former IRS Agent
As Former IRS agent the best advice I can give you is not to fool around with FBAR.
The Internal Revenue Service and the Department of Justice are launching full-scale investigations.
There are approximately 80 countries that have made treaties with the United States to exchange financial information of all US taxpayers.
The Internal Revenue Service and the federal government realizes there are billions of dollars at stake that can be put into the US Treasury and since there are paper trails, the targets are now easy to catch.
Also the threat and fear of criminal prosecution and prison time looms large. Our best advice is to find IRS before they find you.
If you have a potential problem are uneasy about your position contact us today for a free initial tax consultation. All information is held under attorney-client privilege.
The recent news coming from the GAO is the following:
- The Four Offshore Programs
As of December 2012, the Internal Revenue Service’s (IRS) four offshore programs have resulted in more than 39,000 disclosures by taxpayers and over $5.5 billion in tax revenues.
- Why the attraction to the program
The offshore programs attract taxpayers by offering a reduced risk of criminal prosecution and lower penalties than if the unreported income was discovered by one of IRS’s other enforcement programs.
- Penalty aspects of the Case
For the 2009 Offshore Voluntary Disclosure Program (OVDP), nearly all program participants received the standard offshore penalty–20 percent of the highest aggregate value of the accounts–meaning the account value was greater than $75,000 and taxpayers used the accounts (e.g., made deposits or withdrawals) during the period under review.
- The median account balances
The median account balance of the more than 10,000 cases closed so far from the 2009 OVDP was $570,000.
Participant cases with offshore penalties greater than $1 million represented about 6 percent of all 2009 OVDP cases, but accounted for almost half of all offshore penalties. Taxpayers from these cases disclosed a variety of reasons for having offshore accounts, and more than half of them had accounts at Swiss bank UBS.
Using 2009 OVDP data, IRS identified bank names and account locations that helped it pursue additional noncompliance.
Based on a review of cases, GAO found examples of immigrants who stated in their 2009 OVDP applications that they were unaware of their offshore reporting requirements. IRS officials from the Offshore Compliance Initiative office said they have not targeted outreach efforts to new immigrants.
Using information from the 2009 OVDP, such as the characteristics of taxpayers who were not aware of their reporting requirements, to increase education and outreach to those populations could promote voluntary compliance.
- Attempting to circumvent paying the taxes
IRS has detected some taxpayers with previously undisclosed offshore accounts attempting to circumvent paying the taxes, interest, and penalties that would otherwise be owed, but based on GAO reviews of IRS data, IRS may be missing attempts by other taxpayers attempting to do so.
GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to IRS about taxpayers’ possible offshore activities, and found many more potential quiet disclosures than IRS detected.
Moreover, IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent monies owed, thereby missing opportunities to help ensure compliance.
From tax year 2007 through tax year 2010, IRS estimates that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest, and penalties by not participating in an offshore program, but instead simply amending past returns or reporting on current returns previously unreported offshore accounts, result in lost revenues and undermine the programs’ effectiveness.
If you have 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, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing a Report of Foreign Bank and Financial Accounts (FBAR). See the ‘Who Must File an FBAR’ section below for additional criteria.
Current FBAR Guidance
FBAR final regulations
On February 24, 2011, the Treasury Department published final FBAR regulations. These regulations became effective March 28, 2011, and apply to FBARs required to be filed with respect to foreign financial accounts maintained at any time during calendar year 2010, and for FBARs required to be filed with respect to all subsequent calendar years.
The FBAR form and instructions were revised to reflect the amendments made by the final regulations.
Filing deferral for certain individuals with signature authority only, effective through June 30, 2014
On May 31, 2011, the Financial Crimes Enforcement Network (FinCEN) issued FinCEN Notice 2011-1 (revised June 6, 2011), to provide an extension of time for certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity.
The filing deadline to report signature authority over these accounts was extended to June 30, 2012, for the following individuals:
- An employee or officer of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of a controlled person of the entity; or
- An employee or officer of a controlled person of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of the entity, the controlled person, or another controlled person of the entity.
For purposes of FinCEN Notice 2011-1, a controlled person is a United States or foreign entity more than 50 percent owned (directly or indirectly) by an entity under 31 CFR § 1010.350(f)(2)(i)-(v).
On June 17, 2011, FinCEN issued Notice 2011-2 to provide an extension of time to file for certain officers or employees of investment advisors registered with the Securities and Exchange Commission who have signature authority over, but no financial interest in, foreign financial accounts of their employer.
The filing deadline for employees and officers to report signature authority over these accounts was similarly extended to June 30, 2012.
Due to additional questions and concerns regarding the signature authority filing exceptions within Notice 2011-1 and Notice 2011-2, FinCEN twice extended the revised filing deadlines imposed by those two notices.
On February 14, 2012, FinCEN issued FinCEN Notice 2012-1, extending the deadline to file to June 30, 2013, for those persons identified in Notice 2011-1 and Notice 2011-2. More recently, on December 26, 2012, FinCEN issued Notice 2012-2, further extending the due date for filing to June 30, 2014.
Who Must File an FBAR
United States persons are required to file an FBAR if:
- The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
United States person means U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
Contact us for an immediate tax consultation and hear the truth about your case from a very reputable and experienced professional tax firm.
FBAR TAX SERVICES – Attorneys, CPA’s – Affordable FBAR Tax Services Experts
by Fresh Start Tax | Aug 7, 2013 | FBAR
As a former IRS agent the best advice I can give you is not to fool around with FBAR. The Internal Revenue Service and the Department of Justice are launching full-scale investigations.
There are approximately 80 countries that have made treaties with the United States to exchange financial information of all US taxpayers.
The Internal Revenue Service and the federal government realizes there are billions of dollars at stake that can be put into the US Treasury and since there are paper trails, the targets are now easy to catch. Also the threat and fear of criminal prosecution and prison time looms large. Our best advice is to find IRS before they find you.
If you have a potential problem are uneasy about your position contact us today for a free initial tax consultation. All information is held under attorney-client privilege.
The recent news coming from the GAO is the following:
The Four Offshore Programs
As of December 2012, the Internal Revenue Service’s (IRS) four offshore programs have resulted in more than 39,000 disclosures by taxpayers and over $5.5 billion in tax revenues.
Why the attraction to the program
The offshore programs attract taxpayers by offering a reduced risk of criminal prosecution and lower penalties than if the unreported income was discovered by one of IRS’s other enforcement programs.
Penalty aspects of the Case
For the 2009 Offshore Voluntary Disclosure Program (OVDP), nearly all program participants received the standard offshore penalty–20 percent of the highest aggregate value of the accounts–meaning the account value was greater than $75,000 and taxpayers used the accounts (e.g., made deposits or withdrawals) during the period under review.
The median account balances
The median account balance of the more than 10,000 cases closed so far from the 2009 OVDP was $570,000.
Participant cases with offshore penalties greater than $1 million represented about 6 percent of all 2009 OVDP cases, but accounted for almost half of all offshore penalties. Taxpayers from these cases disclosed a variety of reasons for having offshore accounts, and more than half of them had accounts at Swiss bank UBS.
Using 2009 OVDP data, IRS identified bank names and account locations that helped it pursue additional noncompliance.
Based on a review of cases, GAO found examples of immigrants who stated in their 2009 OVDP applications that they were unaware of their offshore reporting requirements. IRS officials from the Offshore Compliance Initiative office said they have not targeted outreach efforts to new immigrants.
Using information from the 2009 OVDP, such as the characteristics of taxpayers who were not aware of their reporting requirements, to increase education and outreach to those populations could promote voluntary compliance.
Attempting to circumvent paying the taxes
IRS has detected some taxpayers with previously undisclosed offshore accounts attempting to circumvent paying the taxes, interest, and penalties that would otherwise be owed, but based on GAO reviews of IRS data, IRS may be missing attempts by other taxpayers attempting to do so.
GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to IRS about taxpayers’ possible offshore activities, and found many more potential quiet disclosures than IRS detected.
Moreover, IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent monies owed, thereby missing opportunities to help ensure compliance.
From tax year 2007 through tax year 2010, IRS estimates that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest, and penalties by not participating in an offshore program, but instead simply amending past returns or reporting on current returns previously unreported offshore accounts, result in lost revenues and undermine the programs’ effectiveness.
Why this GAO study was conducted
Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to be several tens of billions of dollars, but no precise figure exists. IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest, and penalties.
GAO was asked to review IRS’s second offshore program, the 2009 OVDP. This report
- (1) describes the nature of the noncompliance of 2009 OVDP participants,
- (2) determines the extent IRS used the 2009 OVDP to prevent noncompliance, and
- (3) assesses IRS’s efforts to detect taxpayers trying to circumvent taxes, interests, and penalties that would otherwise be owed.
- To address these objectives, GAO analyzed tax return data for all 2009 OVDP participants and exam files for a random sample of cases with penalties over $1 million; interviewed IRS Offshore officials; and developed and implemented a methodology to detect taxpayers circumventing monies owed.
Recommendations of the GAO
Among other things, GAO recommends that IRS
- (1) use offshore data to identify and educate taxpayers who might not be aware of their reporting requirements;
- (2) explore options for employing a methodology to more effectively detect and pursue quiet disclosures and implement the best option; and
- (3) analyze first-time offshore account reporting trends to identify possible attempts to circumvent monies owed and take action to help ensure compliance. IRS agreed with all of GAO’s recommendations.
Should you need our help contact us today and speak directly to a tax attorney, CPA who is qualified and is an expert in FBAR tax representation, tax filings, and abatement of penalties.
Our staff is available for free initial tax consultation. We are A+ rated by the Better Business Bureau.
FBAR News – FBAR Tax Services
by Fresh Start Tax | Jul 15, 2013 | Expatriate Tax, FBAR
If you are having any issues or potential issues with the Internal Revenue Service contact us today. We are IRS experts for all offshore tax matters and tax problems.
The Treasury Department said it would delay for six months the implementation of a global regulatory system that aims to make it harder for Americans to hide money offshore.
In the first three years of the Internal Revenue Service and the Department of Justice Offshore Programs the feds raked in $5.5 billion.
IRS is going to slam the door shut on those taxpayers or businesses not paying their tax debt relating to their offshore bank accounts.
The best advice we can give you is to find IRS before they find you.
The Treasury delayed implementation of the new law for six months.
Effective Date now July 2014
The change means that central provisions of the Foreign Account Tax Compliance Act will go into effect in July 2014.
FATCA requires financial institutions in other countries to provide information to the U.S. government about accounts held by U.S. citizens.
Financial institutions in many countries are arranging to share the information through their own governments to avoid violating local privacy laws.
80 countries now getting involved
Treasury officials said they have signed nine agreements with other countries to implement the new law, and currently are negotiating with about 80 countries.
“Given the groundswell of international interest in FATCA, we are providing an additional six months to complete agreements with countries and jurisdictions across the globe,” said Robert B. Stack, the Treasury Deputy Assistant Secretary for international tax affairs.
Weekend Investor
The anti-evasion net being cast by the U.S. is inspiring similar efforts by other big countries.
Finance ministers from the Group of 20 large economies in April endorsed a global system similar to the U.S. measure that would help other countries combat tax evasion. But such a system is expected to take years to complete.
In the meantime, Treasury officials faced a tricky and difficult task in working out all the pending country-by-country agreements.
While the basic terms of the pacts are the same, crucial details vary—for instance, which low-risk financial accounts can be exempted from FATCA’s main requirements.
International banks and financial institutions also said the U.S. law would force them to cope with significant new complexity and absorb big compliance costs.
They’ve been urging more modifications to the planned system and longer lead times.
“While we had asked for an extension until Jan. 1, 2015, we greatly appreciate Treasury recognizing that financial institutions globally need more time to comply with this important law that our members continue to support,” said Payson Peabody, tax counsel at the Securities Industry and Financial Markets Association, a trade group. “We look forward to continuing our dialogue with Treasury in order to ensure that FATCA is implemented in accordance with the intent of Congress with the least possible disruption to financial markets.”
“FATCA is a tremendous undertaking for both the IRS and the financial services industry, and we think the extension is warranted and helpful,” said Sally Miller, CEO of the Institute of International Bankers.
Manal Corwin, a former top Treasury official who’s now an international tax practitioner at KPMG LLP, said she expects a significant number of agreements to be between the U.S. and other countries by the new deadline.
“Just because an agreement is not publicly signed doesn’t mean it’s not far along,” she said. “I’m confident that [Treasury officials] will” conclude a substantial number of agreements by mid-2014.
contributed to this article, tks John Mc Kinnon
IRS Offshore Tax News – Warning for those who are hiding their money, IRS is coming
by Fresh Start Tax | Jun 26, 2013 | FBAR
Getting Rid of FBAR Penalties
Contact us today for free initial tax consultation. We are comprised of tax attorneys, tax lawyers, and former IRS agents who have over 60 years of working directly for the Internal Revenue Service in the local, district, and regional tax offices of the Internal Revenue Service.
We are A+ rated by the Better Business Bureau and have been in private practice since 1982.
The IRS has been delegated authority to assess FBAR civil penalties.
There are civil penalties for negligence, pattern of negligence, non-willful, and willful violations. And believe it or not some of the budget is made up for Internal Revenue Service comes from penalties and interest from the Fbar. Fbar is becoming very popular in IRS circles.
Over the last three filing seasons the IRS has collected over $5.5 billion in Fbar alone and it is not going away. The threat of criminal prosecution is scaring many people into the filing of their FBAR reports and amending their tax returns as they should.
It is important for taxpayers to understand that they should find IRS before IRS finds them.
Auditor Procedures
Whenever there is an FBAR violation, the examiner will either issue the FBAR warning letter, Letter 3800, or determine a penalty.
Reason for FBAR Penalties
Penalties should be asserted only to promote compliance with the FBAR reporting and record keeping requirements.
In exercising their discretion, examiners should consider whether the issuance of a warning letter and the securing of delinquent FBARs, rather than the assertion of a penalty, will achieve the desired result of improving compliance in the future.
Civil Penalties for FBAR
FBAR civil penalties have varying upper limits, but no floor.
The tax examiner has great discretion in determining the amount of the penalty, if any. The tax examiner discretion is necessary because the total amount of penalties that can be applied under the statute can greatly exceed an amount that would be appropriate in view of the violation.
Tax Examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted and the total amount of penalties to be asserted.
Because FBAR penalties do not have a set amount, IRS has developed penalty mitigation guidelines to assist examiners in the exercise of their discretion in applying these penalties. this is why it is in the best interest of taxpayers to use season and experienced tax professionals to handle to Fbar penalty negotiation defenses. Believe me when I tell you as a former IRS agent this experience will save you great volumes of money
The mitigation guidelines are only intended as an aid for the examiner in determining an appropriate penalty amount.
The tax examiner must still consider whether a warning letter or a penalty amount that is less than what would be called for under the mitigation guidelines would be more appropriate given the facts and circumstances of a particular case.
An Example of this
For example, if an individual failed to report the existence of five small foreign accounts with a combined balance of $20,000 for all five accounts but the income from each account was properly reported and the taxpayer made no effort to conceal the existence of the account, it may be more appropriate to issue a warning letter rather than assert penalties under the mitigation guidelines.
FBAR penalties are determined per account, not per unfiled FBAR, for each person required to file. Penalties apply for each year of each violation.
As noted above, however, tax examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted and the total amount of penalties to be asserted.
Multiple FBAR Penalties
There may be multiple FBAR civil penalty assessments arising from one account.
FBAR civil penalties can apply to each person with a financial interest in, or signature or other authority over, the foreign financial account.
Thus there may be multiple penalty assessments if there is more than one account owner or if a person other than the account owner has signature or other authority over the foreign account.
Each person can be liable for the full amount of the penalty.
Some taxpayers who are dual citizens of the U.S. and a foreign country or who are merely U.S. citizens living and working abroad, may have failed to timely file their FBAR reports.
Good News about FBAR Penalties
The good news is that there is a reasonable case exception under the FBAR Statute that that may eliminate the FBAR penalty altogether..
The authority for the “reasonable cause” exception is found in the IRS Manual IRM 4.26.16.4.3.1 (07-01-2008). See IRS.gov for more on this. If you are going to do this by yourself you would do yourself well by researching are doing some due diligence on this issue.
This IRM approves of the reasonable cause guidance provided under 26 C.F.R. § 1.6664, Reasonable Cause and Good Faith Exception to the § 6662 penalties. IR-2012-65, June 26, 2012 offers a new procedure that will go into effect September 1, 2012, that speak to the reasonable cause exception to the FBAR penalty.
Whether a failure to file or failure to pay is due to “reasonable cause” is based on a consideration of the facts and circumstances.
Reasonable cause relief is generally granted by the IRS when you demonstrate that you exercised ordinary business care and prudence in meeting your tax obligations but nevertheless failed to meet them. In determining whether you exercised ordinary business care and prudence.
The IRS will consider all available information, including:
- The reasons given for not meeting your tax obligations;
- The length of time between your failure to meet your tax obligations and your subsequent compliance; and
- Circumstances beyond your control.
FBAR reasonable cause may be established if you show that you were not aware of specific obligations to file returns or pay taxes, depending on the facts and circumstances.
Among the facts and circumstances that will be considered are:
- Whether you have previously been subject to the FBAR Reporting tax;
- Whether you have been penalized before, your history plays a very important role.
- Whether there were recent changes in the tax forms or law that you could not reasonably be expected to know; and
- The level of complexity of a tax or compliance issue.
- Reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account.
- Evidence that the foreign account was established for a legitimate purpose.
- Evidence that there was no effort to intentionally conceal the reporting of income or assets.
- Evidence that there was no tax deficiency related to the unreported account.
There may be other factors in addition to those listed that may weigh in favor of a determination that the failure to file was due to reasonable cause. Is the job of the tax professional that you have retained to help with these other factors.
Ignorance of the law, if reasonable along with a good faith effort to comply with the law if you could not reasonable be expected to know of the FBAR requirement.
No single factor will determine reasonable cause. It is a facts and circumstances test. As a former IRS agent I can tell you, look at the whole body of the case.
FBAR Penalties – IRS Tax Examiner Discretion
The examiner may determine that the facts and circumstances of a particular case do not justify asserting a penalty. If there was an FBAR violation but the examiner determines that a penalty is not appropriate, the examiner should issue the FBAR warning letter, Letter 3800.
When a penalty is appropriate, IRS has established penalty mitigation guidelines to aid the examiner in applying penalties in a uniform manner.The examiner may determine that a penalty under these guidelines is not appropriate or that a lesser penalty amount than the guidelines would otherwise provide is appropriate or that the penalty should be increased (up to the statutory maximum).
The examiner must make such a determination with the written approval of the examiner’s manager and document the decision in the work papers.
Factors to consider when applying examiner discretion may include, but are not limited to, the following:
Whether compliance objectives would be achieved by issuance of a warning letter;
Whether the person who committed the violation had been previously issued a warning letter or has been assessed the FBAR penalty;
The nature of the violation and the amounts involved; and,
The cooperation of the taxpayer during the examination.
Given the magnitude of the maximum penalties permitted for each violation, the assertion of multiple penalties and the assertion of separate penalties for multiple violations with respect to a single FBAR form, will be considered.
FBAR Penalty Negotiation Defense – Affordable Attorneys, Lawyers Former IRS
