Can you Avoid FBAR Penalties – How to Reduce IRS Offshore Penalties
When it comes to IRS offshore penalties for undisclosed foreign money, the FBAR penalties are the most notorious.
And, even if a person is non-willful, the U.S. government can still issue penalties reaching hundreds of thousands of dollars — if not more.
While it may not always be feasible to walk away from a noncompliant FBAR situation without any penalties, you may be able to (legally) significantly reduce the chance of receiving harsher FBAR penalties.
Avoid or Reduce FBAR Penalties
There are ways you can reduce or avoid FBAR penalties legally, without having to engage in unethical behavior, such as submitting a Quiet Disclosure.
Here are some tips to try to avoid (or reduce) FBAR Penalties:
Stay Abreast of Your Foreign Accounts
We understand that in some countries it can be very difficult to obtain bank information than it is in other countries, such as the U.S.. And, and some countries even if you never use an account, or stop using it – the account does not close and may literally remain open and dormant…forever.
We recommend trying to obtain all the information you can, and then putting together a spreadsheet for your own records.
If it all possible, it is best to do this without proactively reaching out to the foreign financial institution (FFI), because that may alert them to the fact that you are out of compliance — which can lead to bigger headaches.
If you do not have the information accessible or available and believe you have to reach out to institution directly, you may want to speak with an experienced FBAR lawyer first.
File the FBAR Timely Each Year
We realize this is the obvious answer, but by filing a timely FBAR, you will not be out of compliance, and therefore you will not be subject to FBAR Penalties. If you have a CPA or other tax professional who did not properly advise you on the annual FBAR filing requirement, you may qualify for a county waiver with reasonable cause — and avoid FBAR penalties.
If you Did not File Timely, Take Swift Action
Once you realize you were out of compliance, it can be difficult to pick yourself up and proactively make a submission to the IRS before they even know you are noncompliant.
The problem is with procrastination, is the longer you wait, the more chance the IRS has to fine you.
And, with more than 110 different countries and 300,000 foreign financial institutions actively reporting to the IRS, it is getting more difficult to fly below the radar.
Voluntary Disclosure is Not Guaranteed to Stay Around
In 2009 the IRS developed a more specific offshore disclosure program called OVDP. The program was discontinued in 2018 — which illustrates that what the IRS gives, it can taketh away.
And, while there is a new program in place (updated voluntary disclosure practice), and for some people they will fare better under the new program — many people who have fared better under traditional OVDP.
Streamlined Disclosure May be Discontinued
The IRS can discontinue the streamlined programs at any time (and has indicated it has its own shelf-life).
The IRS can also increase the Streamlined penalty at anytime.
And, if the IRS finds you before you have an opportunity to disclose, you lose the right to voluntarily disclose under one of the IRS tax amnesty programs.
Do Not Attempt to File a Silent or Quiet Disclosure
An FBAR quiet disclosure is illegal.
If you are caught making a silent disclosure, you may be subject to willful penalties — along with the possible criminal investigation by the IRS special agents or DOJ.
Getting Into IRS Offshore Compliance
It is human nature to want to avoid making a proactive submission to a government agency such as the IRS before the IRS ever discovers the non-compliance. But, typically that is best path forward.
Golding & Golding – Board Certified in Tax Law
Golding & Golding represents clients worldwide in over 70-countries exclusively in Streamlined, Offshore and IRS Voluntary Disclosure matters. We have successfully completed more than 1000 streamlined and voluntary disclosure submissions.
Our Team Lead is a Board Certified Tax Law Specialist (Less than 1% of Attorneys nationwide) and Enrolled Agent, with a Master’s of Tax Law (LL.M.)
Mr. Golding leads his team in each and every case we accept for submission.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.