Dispelling FBAR Myths, Fear-Mongering & Other Nonsense

Dispelling FBAR Myths, Fear-Mongering & Other Nonsense

Dispelling FBAR Myths, Fear-Mongering & Other Nonsense

The FBAR is a government form that many U.S. taxpayers are required to file each year, in addition to their tax returns, to report their foreign accounts, assets, and investments. While the FBAR is not an IRS form, the Internal Revenue Service is tasked with enforcement — and sometimes the IRS can be overly-aggressive when enforcing FBAR non-compliance. However, oftentimes, penalties can be minimized or avoided by qualifying for one of the FBAR/offshore amnesty programs. Unfortunately, many taxpayers will find themselves down a rabbit hole or two, engaging in ‘free FBAR consultations’ with unethical fear-mongering attorneys who make the unsuspecting taxpayer believe the situation is much worse than it really is. Let’s examine some common myths about foreign account penalties.

Myth: FBAR Violations are Criminal

The first thing to remember is that 99% of the time, an FBAR violation is a civil violation – with no risk of incarceration. Beware of attorneys who may lead you to believe you are a criminal or going to jail during an initial call. Most of the time, the violations are non-willful civil violations — and most taxpayers will qualify for FBAR amnesty to reduce or eliminate the penalties.

Myth: You are Going to Jail

In the realm of FBAR non-compliance, there is nothing worse than attorneys who want taxpayers to believe that by simply failing to have reported their foreign accounts accurately or timely, they are going to jail. There are only 2000-3000 criminal IRS prosecution cases each year, and most of them have nothing to do with international tax — and even fewer have anything to do with FBAR. So, presumably, unless you committed some serious crimes, you are not going to jail for FBAR non-compliance.

Myth: Everyone Gets Penalized for FBAR

The IRS indeed can penalize taxpayers who fail to file the FBAR — or fail to file it timely — but the IRS has also developed several amnesty programs to assist taxpayers with getting into compliance. Depending on the facts and circumstances, the taxpayer may qualify for a penalty waiver, especially in situations where the FBAR is the only form they missed filing (and have no unreported income) and/or they qualify for the Streamlined Foreign Offshore Procedures.

Myth: You Need to Sign with an Attorney ‘Immediately’

Please be cautious of Attorneys who claim to be experts and want you to sign with them immediately after giving you a free FBAR consultation. 99% of the time, a free FBAR consultation is a little more than a fear-mongering scare fest designed by the attorney to make you feel you need to sign immediately to avoid going to jail or prison. Also, beware of any attorney who does not want to provide you the opportunity to evaluate the marketplace to make sure you are a good fit for that firm (and to allow you to review the attorney’s credentials).

Myth: Your Attorney is ‘Board-Certified’ or an ‘Expert’

Incredulously, some attorneys will falsely claim to be a Board-Certified Tax Law Specialist when they are not Board-Certified at all. And unfortunately, the client may not realize this until they have spent tens of thousands of dollars for subpar services. For a tax attorney to be board certified, they have to be licensed by at least one State Bar and pass all the rigorous requirements (even if they only practice federal tax law).

Just having a CPA on staff does not make an attorney board-certified, and it is important that you research an attorney’s credentials before you engage that firm.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.

 Contact our firm today for assistance.