IRS Reasonable Cause FBAR Violation Penalties (Summary 2020)
IRS Reasonable Cause Statement for FBAR Violation Penalties: The IRS Reasonable Cause Statement for FBAR Violation Penalties is complex. FBAR is one of the the most dreaded IRS international information reporting forms in existence. It is not so much because of the complexity of the form (although it can be deceptively hard), but because of the penalties. And with the Internal Revenue Service taking an aggressive position on matters involving foreign accounts compliance, the fear is warranted. But, if a U.S. person is out compliance for not timely reporting offshore accounts, assets and investments, there are multiple amnesty programs available, such as FBAR Amnesty or FATCA Amnesty. These programs are collectively referred to as Voluntary Disclosure.
IRS Reasonable Cause Statement for FBAR Violation Penalties
The IRS Reasonable Cause Statement for FBAR Violation Penalty analysis has many layers to it. With Reasonable Cause and offshore disclosure, the taxpayer makes either a pre-penalty request for a penalty waiver or post-issuance abatement request for a penalty removal — depending on the timing of the request. Unlike the Streamlined Program and certification forms 14653 and 14654, there is no specific Reasonable Cause Statement form. Rather, the client must rely on the tax attorney to draft a unique and effective reasonable cause request.
Reasonable Cause Before a Penalty is Issued
The pre-penalty reasonable cause submission is the most effective. In the pre-penalty phase, the taxpayer is in the best position to try to avoid the penalty. This is because since the penalty has not been assessed yet, and you are dealing with more a lower-level personnel such as an IRS examiner. As a result, there is more wiggle room to try to sell your story to the IRS agent – and try to avoid the penalty altogether.
Reasonable Cause After a Penalty is Issued
Penalty abatement occurs after the penalty has been issued, and the taxpayer is seeking to abate the penalty that has already been assessed. Once the offshore penalty has been issued, it is a bit more complicated. This is because the penalty is already on the books. Thus, it takes more effort for the underpaid and overworked agent to remove the penalty from the books then had he simply not assessed it in the first place.
Avoid Self-Representation for International Reasonable Cause Cases
The recent case of U.S. v. Agrawal illustrates the risk and pitfalls of “Do-it-yourself” in the world of offshore penalties.
Streamlined Disclosure vs. Reasonable Cause
Oftentimes, a filer may have the choice to submit either a reasonable cause or streamlined submission. Sometimes, the filer will not have much of an option — for example, if the taxpayer did not file timely tax returns (when required) in the prior years.
As a side note, the reasonable cause vs. streamlined comparison generally refers to the streamlined domestic offshore procedures.
Because with Streamlined Foreign, there is no penalty.
When it comes to analyzing the reasonable cause or streamlined submission, there are a few factors to consider. With reasonable cause, not only must the applicant be non-willful, but he or she must also meet the additional requirement of reasonable cause.
Here are some preliminary considerations:
- Did the taxpayer submit timely original tax returns?
- Did the taxpayer rely on a tax professional?
- What is the total Title 26 Miscellaneous Offshore Penalty?
- What is the downside if penalties are issued?
- Is the Taxpayer’s general audit risk, low?
IRS Reasonable Cause IRM 18.104.22.168.2 (11-21-2017)
IRS Agents refer to the IRM or Internal Revenue Manual when assessing a Reasonable Cause submission.
What is Reasonable Cause?
As provided by the IRM:
Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise apply. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but was nevertheless unable to comply with those obligations.
In the interest of equitable treatment of the taxpayer and effective tax administration, the non-assertion or abatement of certain civil penalties based on reasonable cause or other relief provisions provided in this IRM must be made in a consistent manner and should conform with the considerations specified in the IRC, Treasury Regulations (Treas. Regs.), policy statements, and IRM Part 20.1, Penalty Handbook.
Reasonable cause relief is not available for all penalties; however, other exceptions may apply.
For those penalties where reasonable cause can be considered, any reason which establishes that the taxpayer exercised ordinary business care and prudence, but nevertheless was unable to comply with a prescribed duty within the prescribed time, will be considered.
If a reasonable cause provision applies only to a specific IRC section, that reasonable cause provision will be discussed in the IRM 20.1 section relating to that specific IRC section. See IRM 22.214.171.124.2and Exhibit 20.1.1-1, Penalty Relief Application Chart.
When considering the information provided in the following subsections, remember that an acceptable explanation is not limited to those given in IRM 20.1.
Penalty relief may be warranted based on an “other acceptable explanation,” provided the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the prescribed time. See IRM 126.96.36.199.2.2, Ordinary Business Care and Prudence.
Golding & Golding (Board-Certified Tax Law Specialist)
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Beware of inexperienced counsel trying to mislead you about the Streamlined Procedures or Reasonable Cause.
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
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.