FBAR Penalties
Contents
- 1 2022 FBAR Roundup
- 2 FBAR Due Date & Automatic Extension
- 3 Willfulness and Non-Willful in the Same Case
- 4 A Willful Streamlined Offshore Submission Is Dangerous
- 5 Seeking Willful Penalties in a Streamlined Offshore Audit
- 6 Non-Willfulness Penalties Are All Over the Board
- 7 Reasonable Cause May Avoid Penalties
- 8 Avoid False Offshore Disclosure Submissions (Willful vs. Non-Willful)
- 9 Golding & Golding: About Our International Tax Law Firm
2022 FBAR Roundup
As 2022 comes to a close and we head into 2023, foreign accounts compliance (FBAR) remains at the forefront of IRS international tax compliance enforcement. The Internal Revenue Service continues to pursue US taxpayers who have failed to timely report their foreign accounts on the FBAR (aka FinCEN Form 114). What makes the FBAR so difficult is not so much the actual preparation (the preparation itself is less complex than many other international tax forms), but the ancillary issues such as:
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Which foreign accounts are reported?
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What if the FBAR was filed incompletely?
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Should I file a late FBAR?
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Will I get penalized and how much?
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What are my options for amnesty?
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As we close out 2022 and head into 2023, let’s take a look at some important information about FBAR filing and recent cases.
FBAR Due Date & Automatic Extension
As a preliminary matter, the FBAR is due on April 15th, but it is currently on automatic extension to October. The IRS can change this rule at any time, so it is important to check around February of 2023 to ascertain if the rule is still in play.
Willfulness and Non-Willful in the Same Case
Civil FBAR penalties are broken down into two main categories: willful and non-willful. When the IRS alleges that a person acted willfully, it does not mean they acted with intent. It means they acted either (1) intentionally; (2) with reckless disregard; or (3) with willful blindness. In fact, if a person missed FBAR filings in multiple prior years, they may be willful in some years and non-willful in other years. See the FBAR case of Hughes.
A Willful Streamlined Offshore Submission Is Dangerous
In the case of Rahman, the Taxpayer submitted an alleged false streamlined filing compliance procedures submission trying to appear non-willful, when the IRS believed he was willful. The streamlined procedures are only for non-willful submissions. See FBAR case of Rahman.
Seeking Willful Penalties in a Streamlined Offshore Audit
When a Taxpayer submits to the IRS Streamlined Procedures, it does not mean that they have entered into a contract with the IRS. In fact, the IRS can still seek willful FBAR penalties against Taxpayers who submit to the streamlined procedures. See FBAR case of Flint.
Non-Willfulness Penalties Are All Over the Board
When a Taxpayer is assessed civil penalties for FBAR noncompliance, the IRS has the opportunity to penalize taxpayers based on there being a ‘violation.’ The problem is: there is no specific definition of the term violation. Does it mean one penalty per year (Boyd) or does it mean one penalty per account (Bittner)? This has become such a heated issue, that the U.S. Supreme Court accepted the Bittner case and a ruling should come down in 2023.
Reasonable Cause May Avoid Penalties
It is important to note that when a Taxpayer can show their noncompliance was due to reasonable cause, the IRS does not issue FBAR Penalties. Once a Taxpayer misses 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 that 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 of the streamlined procedures. 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.
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.