FBAR Penalty Appeals Process
FBAR Appeals Process: When the IRS issues a penalty for late or incomplete FinCEN Form 114, the Taxpayer still has an opportunity to appeal the penalty. It is important to note the time constraints for FBAR penalties, since the Taxpayer does not have chance to take the Internal Revenue Service to Tax Court.
How to Reduce or Eliminate FBAR Fines
Why is the FBAR Appeals Process so confusing? Because the IRS statute and corresponding FBAR penalties fall under title 31, instead of title 26. In addition, the statute of limitations for assessment and enforcement are also more limited than regular taxes; hence, the increased enforcement priority for the IRS.
Overal, the FBAR appeals process is a complicated procedure because the FBAR is not a tax penalty. Rather, it is a penalty for not “reporting” foreign accounts under IRC 5314 and 5321.
Brief FBAR Overview
The FBAR is Foreign Bank and Reporting Account form. It is also referred to as “Reporting Foreign Bank and Financial Account Form” or FinCEN Form 114. U.S. persons with an annual aggregate total of more than $10,000 in foreign accounts is required to file the annual FBAR.
How Does the IRS Know if I Filed the FBAR?
The IRS Can used the FCQ or FinCEN Query System or the IDRS Integrated Data Retrieval System
What is the Statute of Limitations IRM (188.8.131.52.1)
The statute of limitations can be found in the IRM 184.108.40.206.1. The IRS has the same amount of time to enforce willful and non-willful penalties. The Internal Revenue Service is allowed 6-years to enforce.
Pre-Assessed vs. Post-Assessed Penalties
In an ideal situation, the U.S. account holder will seek to fight the penalties before they are formally assessed (proposed FBAR penalties). This provide the account holder more options, and there are more tools available. If the account holder waits until after they have been assessed, it can be more difficult.
As provided by the IRS:
“Post-assessed FBAR cases in excess of $100,000 (excluding interest, penalties and administrative costs) cannot be compromised by Appeals without approval of the Department of Justice (DOJ). See 31 USC § 3711(a)(2) and 31 CFR § 902.1(a) and (b).
Once assessed, the penalty becomes a claim of the U.S. government.”
Post-Assessment FBAR Appeals
The IRS makes a formal assessment on Form Letter 3708. This is a demand by the IRS to collect a debt. One important aspect is that the recipient may still request a post-assessment hearing. BUT, the account holder does not get a second hearing, if they already had a hearing in the pre-assessment stage.
FBAR & Federal Court
FBAR enforcement is not a “Tax” matter and is therefore not handled in tax court. Thus, post-assessed penalties can be disputed two ways:
- Wait to get sued by the IRS and counter-claim (noting, interest continues to accrue); or
- Pay the debt, and sue the IRS for refund.
With the former option, the DOJ has 2-years to initiate legal action from when the penalty assessed. Otherwise, the U.S. Government loses the right to enforce.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm for assistance with getting compliant.