FBAR Investigations: Foreign Account Reporting

FBAR Investigations

FBAR Investigations

FBAR Investigations: How the IRS, FinCEN and U.S. Government handle FBAR investigations varies depending on the facts and circumstances of the filer’s noncompliance. For example, when a non-willful person has no unreported income, the inquiry will presumably remain civil — and a penalty waiver or abatement may be an option. On the other end of the spectrum, when a taxpayer has unreported income, several offshore accounts in different countries, and other factors that may lead the IRS to believe the person is willful — it may lead to a more serious FBAR investigation. In the latter scenario, the Taxpayer may be subject to willful FBAR fines and penalties — and possibly even a criminal investigation — although criminal enforcement is rare.

Let’s review the FBAR Investigation process.

FBAR Investigations are Handled by the IRS

Even though FBAR is a FinCEN Form, since 2003 the IRS has been in-charge of enforcement.

While the FBAR investigation process will vary, here is generally how the process works.

FBAR Investigations Lead to IRS Foreign Account Audits

Under most circumstances, the person who has not filed an FBAR will first learn about their non-compliance by way of an IRS Audit.

There are common situations that lead to an audit of FBAR.

FBAR Specific Audit

With an FBAR audit, the U.S. government already has information leading them to believe that the person has not properly filed their FBAR — and this leads to the FBAR Investigation.

As a result, the main focus of the audit will be FBAR and foreign account compliance — which may lead to questions about other unreported forms as well — and more penalties.

Regular Tax Audit with IDR leads to FBAR Investigation

In other FBAR audit situations, a person is under a “general audit” but receives an IDR (information document request) that asks about any unreported income or foreign accounts as well. This type of IDR is not uncommon, and often takes the taxpayer by surprise — as many non-filers are unaware that they had any reporting requirement until learning about it during the audit.

Late or Delinquent FBAR

Another common way a person is under investigation for FBAR, is when they file the FBAR late.

Penalties may hinge on whether they used proper FBAR amnesty procedures.

FBAR Investigation of a Quiet Disclosure & IRS Special Agents

In recent years, the US government has made it known that they will not tolerate a quiet disclosure.

A quiet disclosure of FBAR occurs when a person either mass files prior year FBARs, or just start filing forward — without using proper amnesty procedures for prior year non-compliance.

This type of filing may lead to willful penalties and an investigation by the IRS Special Agents.

3rd Party Voluntary Disclosure or Streamlined

This is a common scenario when it involves former business partners and/or spouses.

One partner or former spouse decides they want to get into offshore compliance. During the compliance period, they had joint accounts with the non-filer which are now disclosed through the voluntary disclosure process.

This puts the U.S. government on notice that there is another individual (you) who has foreign accounts, but did not properly comply with the reporting requirements.

Our FBAR Lawyers Represent Clients Worldwide

Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure and FBAR investigations.

Contact our firm for assistance with getting compliant.