Challenging FBAR Penalties: Pre-Assessment vs. Post-Appeal
When the IRS issues FBAR penalties, there are various stages to enforcement. The process is generally broken down into two phases: pre-assessment and post-assessment. When a taxpayer wants to challenge the issuance of the FBAR penalty, the process they follow is determined by what stage of the game they are in.
What are Pre-Assessment FBAR Penalties?
In general, it is easier to dispute or challenge the pre-assessment penalty vs. the post-assessment penalty, since post-assessment penalties are later in the game, and the IRS is less included to waive penalties once assessed.
The pre-assessment phase can be broken down into Pre-Letter 3709 and Post-Letter 3709.
When the taxpayer appeals prior to letter 3709 being issued, the taxpayer may be able to see a fast-track resolution.
*18.104.22.168 (09-27-2018) FBAR Overview
Pre-assessed FBAR penalties are eligible for Fast Track Settlement (FTS) only if the FBAR 30-Day Letter, Letter 3709, has not been issued to the taxpayer. Refer to IRM 8.26.2, Fast Track Settlement for Small Business/Self Employed (SB/SE) Taxpayers.
When the IRS issues a Letter 3709, the clock starts running for the taxpayer to appeal.
Here are the key points to the 3709 letter:
“We are proposing the assessment of a penalty under 31 U.S.C. § 5321(a)(5) for failing to meet the filing requirements of 31 U.S.C. § 5314. For each calendar year, any U.S. person having one or more foreign accounts with maximum balances aggregating over $10,000 is required to file Form TDF 90-22.1, Report of Foreign Bank and Financial Accounts with the Internal Revenue Service.
For the failure to file TDF 90-22.1 due on or after June 30, 2005, the penalty cannot exceed $10,000.
For the willful failure to file TDF 90-22.1 due on or after June 30, 2005, the penalty cannot exceed the greater of
1.) $100,000 or
2.) 50% of the amount of the transaction (in such case as a violation involving a transaction) or the balance in the account (in such case as a violation involving a failure to report the existence of an account or a failure to provide identifying information with respect to an account).
What To Do If You Agree
If you agree to the assessment and collection of the proposed penalty or penalties, please sign, date, and return one copy of the enclosed Form 13449, Agreement to Assessment and Collection of Penalties Under 31 USC 5321(a)(5) and 5321(a)(6), in the envelope provided. Make your check or money order payable to the United States Treasury for the amount indicated on the agreement form.
What To Do If You Disagree
If you do not agree to the assessment and collection of the proposed penalty or penalties, you can request a conference with our Appeals Office. To do so, forward a written protest in duplicate before the designated response date, which is listed in the header of this letter, and mail it to the revenue agent indicated above. Include the following:
Filing an FBAR Appeal
When a Taxpayer files and appeal letter with the appeals office, it provides the taxpayer an opportunity to avoid having to pay the penalty. The IRS may agree to reduce, limit or waive the final assessment
IRM Internal Revenue Manual 22.214.171.124 (09-27-2018)
For pre-assessed FBAR cases, Appeals requires 365 days remaining on the assessment statute of limitations at the time the administrative file is received in Appeals. Return cases with less than 365 days remaining on the assessment statute of limitations at the time the case is received by Appeals to the originating function as a premature referral so an assessment statute extension may be secured or the penalty assessed.
If the penalty is assessed, the taxpayer will be given post-assessment appeal rights and the 365-day statute requirement is no longer applicable. Refer to IRM 126.96.36.199.1 for information on the assessment statute of limitations for FBAR cases. If an FBAR case is being returned to Examination with new information, there must be at least 210 days remaining on the statute of limitations at the time Examination receives the case. Refer to IRM 188.8.131.52.7, Jurisdiction Released.
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