IRS Enforcement of FBAR Penalties
Contents
IRS Enforcement of FBAR Penalties
How the IRS Enforces FBAR: When it comes to international tax, offshore compliance, and the IRS,one of the most common issues involves the FBAR. Technically, the FBAR refers to foreign bank and financial account reporting (aka FinCEN Form 114). The reason why FBAR penalties are so complicated, is because technically the FBAR is not a tax form. Rather, the FBAR is an international reporting form used to provide both the Financial Crimes Enforcement Network and the IRS information about maximum account values for accounts located outside of the United States. The penalties associated with noncompliance can sometimes be pretty drastic – but not always.
Online fear-mongers scare unsuspecting taxpayers into believing that they will automatically go to prison or pay at least a $500,000 fine if they’re noncompliant — this is incorrect.
We would like to shed some light by providing 5 Important (good) things to know about FBAR Penalties.
Not Everyone Gets Penalized
While FBAR enforcement is on the rise, you (yes, you) are not necessarily going to be penalized.
There is no absolute certainty that a person will be penalized simply because they missed the FBAR filing.
There are also various FBAR amnesty programs in place that can help you minimize and eliminate for account compliance penalties.
Not Everyone is Willful
While willful vs. non-willful can be a tough nut to crack, not everyone is willful.
It is true, that in recent years the IRS has been successful in pursuing willfulness penalties against taxpayers. This is because the U.S. government need not need to prove intent in order to secure willful penalties in the civil tax arena. In addition, the government is only required to prove preponderance of the evidence and not the enhanced standard of clear and convincing evidence, which is required the proof violations such as tax fraud.
Still, the majority of penalties that are issued are still non-willful FBAR penalties.
Transferred Funds, Double Penalties?
Here’s a common question/scenario we receive: I have $400,000 dollars in a single account that I transferred three different times. It looks like I have $1.6 million.
Am I penalized four times?
As long as you can prove at the same money has been transferred multiple times and that it is not new money, you can usually avoid getting hit with the same penalty across multiple accounts, on the same dollars.
*This is why under the Streamlined Domestic Offshore Procedures, the penalty calculation is based on the 12.31 balance and not the absolute max balance throughout the year.
**OVDP/VDP allows you to prove the same money was transferred to multiple accounts to avoid double-counting on the penalty.
***If you are audited vs. making a proactive amnesty or VDP submission, it is a much steeper uphill battle — but not impossible.
FBAR Amnesty may Limit or Avoid Penalties
Before you start losing sleep and diving into one rabbit hole after the next, keep in mind that just because you recently learned about FBAR penalties does not mean you are any further up on the IRS hit list.
Take a deep breath, relax, and start researching the different amnesty programs – which are both safe and effective.
Some of the more common programs, include:
- Voluntary Disclosure Program (VDP or “New” OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Delinquency Procedures
- Reasonable Cause
FBAR Mitigting Factors
Even if you find yourself on the receiving end of an unfair willful or non-willful penalty, you may be able to mitigate those penalties based on various factors used in applying the totality of the circumstance.
The Internal Revenue Manual summarizes how IRS agents and examiners evaluate and apply mitigation when it comes to foreign account penalties.
Our FBAR Lawyers Represent Clients Worldwide
Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
