Important Tips for IRS FBAR Reporting of Foreign Accounts in 2017
At Golding & Golding, our entire law practice is dedicated to International Tax Law — with a focus on IRS Offshore Voluntary Disclosure, FBAR, and FATCA.
One of the main areas of law we deal with involving IRS offshore voluntary disclosure is the filing of unreported prior year IRS FBARs in order to assist taxpayers in filing unreported foreign bank accounts and unreported offshore accounts.
IRS FBAR Tips
As FBAR Lawyers, we are aware that IRS FBAR rules are difficult. The reason why IRS FBAR Filing and Reporting rules are so stress inducing, is because the IRS is not provided straight guidelines as to what type of penalty will be issued in any particular situation.
Rather, the IRS utilizes a totality of the circumstances test for each individual situation – this makes it difficult for a tax professional to provide a concrete assessment of prior year FBAR filing penalty projections (unless the applicant determines that he or she would like to submit to voluntary disclosure).
Can I Use a CPA?
While using a a CPA to file a current year FBAR when a person is not out of compliance may be sufficient, when it involves trying to get back into compliance for one or multiple years (or compliance for the first time), it is important to follow the proper procedures and utilize an experienced international tax lawyer to handle your matter.
Over the years, we have represented thousands of taxpayers worldwide in over 45 different countries, and many times our clients will have the same, or similar questions involving FBAR filing and at FBAR reporting.
Therefore, we are preparing a simplified version of our IRS FBAR Frequently Asked Questions page, to deal with the most common five questions we receive regarding filing an FBAR.
In addition, if you click on any of the five questions below you will be taken to a new post that focuses exclusively on that particular questions, and may assist you in having a better understanding of that specific question or issue.
When is the FBAR Filing Form Due?
Starting in 2017, in order to report tax year 2016 foreign account balances, the due date has been modified to April 15, or whichever day your IRS taxes are due. Depending on whether the 15th falls on a holiday or weekend, your April due date may be later than the 15th by few days.
The FBAR is filed directly online with the Department of the Treasury. The form is technically called a FinCEN 114 (aka Financial Crimes Enforcement Network)
What Accounts are Reported on the FBAR?
Once you have come to learn that you are required to file an annual IRS FBAR statement, one of the most important questions to answer is which accounts are required to be reported on the FBAR. The instructions for the FBAR (FinCEN 114) can be difficult, if not dense. The US government does not make it clear as to what accounts must be reported in with the exceptions to reporting are.
When it comes to reporting your accounts, there is no inherent tax liability; in other words, simply reporting your accounts does not mean you are subject to tax on the money you are reporting. Therefore, it is generally better to error on the side of caution and simply report any account in which you have ownership of the funds, joint ownership of the account (even if the funds are not yours), or signature authority over the account.
What if I did Not File FBARs for Prior Years?
If you did not file FBARs for prior years, it is important to speak with an experienced international tax lawyer before filing your current year FBAR. Why? Because in prior years the IRS did not provide any extension in order to file a late FBAR. Moreover, the penalties for failing to file a timely FBAR can be very significant. They can vary from a warning letter in lieu of penalty all the way up to 100% penalty as a result of a multiyear audit in which the IRS finds that you were willful (or even reckless).
By utilizing an experienced international tax lawyer to represent you in the process, you will not have to speak directly with the IRS agent directly — and this will usually assist the IRS FBAR Filer because now the filer is not concerned about making any incriminatory statement directly to the IRS which then can be used against him or her (or the business or family)
Can I Avoid FBAR Penalties?
You may be able to avoid penalties when submitting your prior year FBARs. But, it is important to understand that the IRS does like to issue penalties for unreported foreign accounts. In fact, when the IRS issued a memorandum regarding what the “typical” penalty should be (for someone who is non-willful), the IRS determined that the penalty should be $10,000 per year. That $10,000 per year can spend upwards of six years in a multiyear audit in which there is more than $5,000 of unreported foreign income in prior years.
Not every IRS agent operates the same; in other words, the agents have some leeway. One agent may look at your set of facts and determine that a warning letter is proper, while a more jaded agent may look at the same fact and determine that you should be penalized at least $10,000 per year.
As a result, even the IRS understands that this may be an overwhelming stress and therefore developed a program called IRS Offshore Voluntary disclosure in order to assist taxpayers in getting back into compliance, or into compliance for the first time.
Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
IRS voluntary disclosure reduces penalties by establishing set guidelines and penalty structures for individuals, estates, or businesses that agree to submit to the program.