- 1 FBAR Reasonable Cause for Late Filing
- 2 IRS FBAR Reasonable Cause IRM 188.8.131.52.2
- 3 Reasonable Cause to Avoid FBAR Fines
- 4 Streamlined Disclosure vs. Reasonable Cause
- 5 Additional Offshore Violation Penalties
- 6 Golding & Golding: About Our International Tax Law Firm
- 7 Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
FBAR Reasonable Cause for Late Filing
FBAR Reasonable Cause for Late Filing: One method U.S. Persons use to limit or avoid IRS penalties, including FBAR Fines, is with a comprehensive reasonable cause submission with experienced FBAR counsel. FBAR is one of the the most heavily penalized IRS international information reporting forms in existence.
Technically, the FBAR is a FinCEN (Financial Crimes Enforcement Network) form but it is enforced by the IRS. While the form is not necessarily very difficult to prepare (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.
In order to avoid or minimize penalties there are multiple amnesty programs available, such as FBAR Amnesty or FATCA Amnesty.
In addition, a person may submit a thorough reasonable cause statement seeking to avoid penalties.
IRS FBAR Reasonable Cause IRM 184.108.40.206.2
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 220.127.116.11.2and 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 18.104.22.168.2.2, Ordinary Business Care and Prudence.
Reasonable Cause to Avoid FBAR Fines
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?
Additional Offshore Violation Penalties
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Penalties for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The failure to file each one of these information returns or for filing an incomplete return, is a penalty the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty starts at $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 926
An unfiled form may lead to a penalty that is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
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.)
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Dually Licensed as an EA (Enrolled Agent) or CPA
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.