FBAR Penalty Defense – Best FBAR Defense is a Good Offense (2019)
FBAR penalties (and most international tax penalties) are on the rise.
The risk of getting hit with FBAR penalties has increased steadily over the past few years.
With the introduction of FATCA (Foreign Account Tax Compliance Act) and the IRS renewed interest in Foreign Account Reporting compliance via FBAR – your foreign accounts are at a much higher risk for exposure than ever before.
FBAR Penalty Defense
When it comes to the IRS burden of proof to “prove” FBAR penalties — the bar is set low.
The civil threshold for willfulness is not actually “Willful” (aka intentional). It has been lowered to a “reckless disregard” standard, with the IRS only having to show a “preponderance of the evidence” — which makes it that much easier fo the IRS to meets its burden.
Why are FBAR Penalties so Bad?
The reason the penalties are so tough is because of the calculation.
Let’s take Civil Tax Fraud: If you owe $100,000 in tax, and you are the in the 37% percentile for income tax, then you owe $37,000 in tax. A 75% Tax on $37,000 is very tough, but oftentimes it can be bearable — if not angering.
The FBAR willful penalty is based on the value of the account. Let’s say you had $100,000 in your account. The IRS can hit you with a 50% penalty on the balance – not on the tax due for any income generated on the accounts.
Moreover, the IRS can issue penalties in excess of the 50%, if they deem it necessary.
How to Reduce, Limit, or Avoid FBAR Penalties?
If you are out of compliance for not properly disclosing foreign income, accounts, assets, and/or investments — and are not under audit or examination — you may consider submitting to IRS Voluntary Disclosure (IRM, Streamlined or Reasonable Cause) in order to get into compliance.
Golding & Golding, Board-Certified Tax Law Specialist Team
Golding & Golding represents clients worldwide in over 70-countries exclusively in Streamlined, Offshore and IRS Voluntary Disclosure matters. We have successfully completed more than 1,000 streamlined and voluntary disclosure submissions.
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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.