Tag Archives: FBAR

IRS Issues Guidance on Foreign Bank Account Report / FBAR Penalties

U.S. persons are required to file the FinCEN Form 114 Report of Foreign Bank and Financial Accounts (FBAR) to report a financial interest in or signature authority over foreign accounts. There is a $10,000 civil penalty for the non-willful failure to the file the FBAR. The penalty for the willful failure to file the FBAR is the greater of $100,000 or 50% of the balance in the foreign account at the time of the violation. Under the statutory authority for such penalties, the monetary penalty for the willful failure to file the FBAR applies for each year.  Criminal penalties such as criminal prosecution and imprisonment also may apply for the willful failure to file the FBAR.

On May 13, 2015, the IRS issued Interim Guidance to IRS employees regarding the procedures for the administration of FBAR penalties. These procedures recognize that IRS examiners have the discretion to determine whether FBAR violations are willful. In most cases, with willful violations over multiple years, the total penalty amount for all years under examination will be limited to 50% of the highest aggregate balance of all unreported foreign accounts during the years under examination. The IRS guidance states the following example to demonstrate the calculation of the penalty.

IRS Example: Assume highest aggregate balances of $50,000, $100,000 and $200,000 for 2010, 2011 and 2012, respectively. The total penalty amount is $100,000 (50% of the $200,000 highest aggregate balance during the years under examination).

Based on these procedures, the 50% penalty is not applied to each year. However, the IRS examiner is allowed to recommend a penalty that is higher or lower than 50% of the highest aggregate balance of all unreported foreign accounts based on the facts and circumstances. The total penalty will not exceed 100% of the highest aggregate balance of all unreported foreign financial accounts during the years under examination.

For non-willful violations, the penalty will be determined for each year based on the aggregate balance of all unreported financial accounts subject to a $10,000 limitation per year. The IRS guidance states that the IRS examiner with certain internal approvals may assert a single $10,000 penalty for one year only in the case of non-willful FBAR violations as warranted under the facts and circumstances. The procedures note that some facts and circumstances may warrant asserting the $10,000 penalty for each year in the case of non-willful violations.

The publication of these IRS procedures may be particularly helpful to U.S. taxpayers in the Offshore Voluntary Disclosure Program who are considering whether to opt out of the OVDP penalty structure.

For more information, please contact Alison Dougherty of Aronson’s Tax Services Group at 301.231.6290 or adougherty@aronsonllc.com.

IRS Issues Updated F.A.Q. for 2012 Offshore Voluntary Disclosure Program

On June 26, 2012, the IRS posted updated frequently asked questions and answers regarding the extended Offshore Voluntary Disclosure Program that it announced in January 2012 (http://www.irs.gov/businesses/small/international/article/0,,id=256774,00.html). The IRS decided to extend the program indefinitely following the success of the 2011 and 2009 Offshore Voluntary Disclosure Initiatives. In its press release IR-2012-64 on June 26, 2012, the IRS announced that the programs have resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures under the 2011 and 2009 programs. Another 1,500 disclosures also have been made since the program was extended in January 2012.

The purpose of the IRS Offshore Voluntary Disclosure Program is to motivate U.S. taxpayers to come into compliance voluntarily with the U.S. international reporting requirements and to prevent offshore tax evasion. The program allows U.S. taxpayers to file delinquent forms such as the Report of Foreign Bank and Financial Accounts (“FBAR”) Form TD F 90-22.1; Form 8938 regarding specified foreign financial assets; Form 5471 regarding foreign corporations owned by U.S. persons; Form 5472 regarding 25% foreign-owned U.S. corporations; Form 8865 regarding foreign partnerships owned by U.S. persons; Forms 3520 and 3520-A regarding foreign gifts and foreign trusts; and Form 926 regarding transfers of property to foreign corporations.

The voluntary disclosure period under the 2012 program includes the most recent eight years for which the filing due date has already passed. According to FAQ #9, the eight year voluntary disclosure period does not include current years for which there has not yet been non-compliance. For example, U.S. taxpayers who submit the voluntary disclosure prior to the original or extended filing due date for the year 2011 must include the years 2003 through 2010 in the disclosure. For U.S. taxpayers who disclose after the original or extended due date for the year 2011, the disclosure must include the years 2004 through 2011.

The applicable penalty for participating in the Offshore Voluntary Disclosure Program is 27.5% of the highest aggregate balance in foreign bank accounts or value of foreign assets during the period covered by the voluntary disclosure. In some limited circumstances, a lower penalty of 12% or 5% could apply based on the requirements in FAQs #52 and #53. The incentive to participate in the Offshore Voluntary Disclosure Program is that U.S. taxpayers are able to file delinquent forms that should have been filed for prior years while avoiding criminal liability.

According to FAQ #3, the 2012 Offshore Voluntary Disclosure Program does not have a set filing deadline by which U.S. taxpayers must apply. However, the IRS could change the terms of the program at any time going forward. For example, the IRS could increase the penalties, limit access to the program for certain taxpayers or end the program altogether.

For further information, please contact your Aronson tax advisor or Alison Dougherty, International Tax Services at 301.231.6795.

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