An FBAR Attorney Overview of Foreign Bank Account Penalties

An FBAR Attorney Overview of Foreign Bank Account Penalties

What is an FBAR Attorney?

The FBAR refers to foreign bank and financial account reporting. It impacts US Persons, such as US Citizens, Lawful Permanent Residents, and foreign nationals who meet the Substantial Presence Test. This may also include Expats who are still considered US persons as well as Expatriates who may have had to file the FBAR in prior years – since the Internal Revenue Service and Department of Justice can still go after former US persons for the time period in which they were considered US persons. At Golding & Golding, we have represented several thousand individuals and entities on matters involving foreign bank and financial account reporting for the FBAR and FATCA (aka Foreign Accounts Compliance). Let’s go through the basics of how an FBAR attorney can assist taxpayers with penalty abatement and appeals.

Do I Need an FBAR Attorney?

In general, taxpayers do not need to hire an FBAR attorney to file a current year FBAR — as far as long as the taxpayers are in compliance for prior years if applicable for FBAR and other international information reporting. If the taxpayer is out of compliance for prior years, then they should consider consulting with a Board-Certified Tax Law Specialist before making any representation to the IRS — including before filing a timely current year FBAR filing.

What is the FBAR

Technically, the FBAR refers to FinCEN Form 114. FinCEN refers to the Financial Crimes Enforcement Network, but rarely do FBAR matters involve criminality. The main takeaway from the FBAR being handled under Title 31 instead of Title 26 is that the FBAR is not a Tax Form — although it is enforced by the IRS.

How Does the IRS Enforce FBAR Penalties?

If the Internal Revenue Service learns that a Taxpayer has not properly disclosed their foreign accounts, such as bank accounts, investment accounts, pooled fund accounts, life insurance, pensions, etc. then the IRS may (and often does) assess penalties — and which penalties tend to far outweigh the breadth of having simply missed reporting a few bank or investment accounts – which is why FBAR enforcement is such a hotbed issue at the current time, so much so that requests have been made to the Supreme Court to review the penalty enforcement procedures.

Civil Non-Willful FBAR Penalty Attorney

A civil non-willful FBAR penalty is the most common. It ranges from a warning letter in lieu of penalty all the way up to $10,000 per account per year  (adjusts for inflation) –– up to a 50% maximum for the total compliance period. Noting, depending on which circuit court the taxpayer resides in may impact the penalty. Some court cases have limited enforcement to $10,000 per year, while other cases allow for a per account, per year penalty.

Civil Willful FBAR Penalty Lawyers

The Civil Willful FBAR penalty can be much worse. Technically, the IRS go can after taxpayers based on 50% of the maximum account value per year, up to 100% value for the account.

Criminal Penalty Representation

The rarest type of FBAR penalty is the criminal FBAR penalty. Typically, criminal FBAR penalties are only involved in situations in which a taxpayer has committed other tax and non-tax crimes, such as tax evasion, money laundering, structuring, etc.

FBAR Amnesty Offshore Disclosure (Pre-Penalty)

For taxpayers who are out of compliance but have not been penalized yet, the Internal Revenue Service has developed various FBAR amnesty programs to assist them with getting into compliance. The penalty structures differ depending on which program the person qualifies for.

Delinquent FBAR Submission Procedures (DFSP)

      • When a Taxpayer does not have to make any substantive changes to their tax return involving unreported income, they may qualify for the Delinquent FBAR Submission Procedures. This program is typically limited to Taxpayers who have no unreported income and are not required to file other delinquent forms in addition to the FBAR. For Taxpayers who qualify for these submission procedures, there is generally no penalty applied for prior-year noncompliance.

Delinquent International Information Return Submission Procedures (DIIRSP) 

      • Up until November of 2020, Taxpayers who had no unreported income (but missed filing international information reporting forms) could sidestep any offshore penalties by filing delinquent forms under DIIRSP. In November of 2020, the IRS rules changed and the IRS does not guarantee that filing delinquent forms will circumvent penalties — although with the right set of facts and circumstances, the Taxpayer may avoid penalties by showing reasonable cause (see further below).

Streamlined Domestic Offshore Procedures (SDOP)

      • The Streamlined Domestic Offshore Procedures are IRS procedures designed for Taxpayers who do not qualify as foreign residents, are non-willful, and filed their original tax returns timely. Under these procedures, a Taxpayer can opt to pay a 5% Title 26 Miscellaneous Offshore Penalty in lieu of all the other delinquent FBAR and FATCA penalties.

Streamlined Foreign Offshore Procedures (SFOP)

      • The Streamlined Foreign Offshore Procedures are probably the best of all the offshore tax programs for Taxpayers who qualify as eligible. This is because if a Taxpayer qualifies as a foreign person and is non-willful, they can avoid all offshore penalties under these procedures. In addition, Taxpayers can file original tax returns.

IRS Voluntary Disclosure Program (VDP) for Delinquent FBAR & FATCA

      • The IRS Voluntary Disclosure Program (VDP) has been in existence for many years. From 2009 to 2018, there was an offshoot of the VDP program — which was referred to as the Offshore Voluntary Disclosure Program (OVDP) — and was primarily for Taxpayers with undisclosed foreign income and assets.  In 2018, the IRS closed this program — but also expanded the traditional voluntary disclosure program on matters involving foreign and offshore income and asset disclosures.

      • Under the prior version of OVDP for delinquent FBAR, FATCA, etc. — even non-willful Taxpayers would submit to the program in order to both receive a closing letter and almost always avoid an audit (unless they opted-out). The new version of the VDP program is geared primarily for Taxpayers who are willful or are unable to certify under penalty of perjury that they are non-willful. It is still a great program in which Taxpayers can almost always avoid criminal prosecution — and it rarely if ever would have any impact on a person’s immigration status (unless the Taxpayer was also “criminally” willful and the government pursued that criminality against the Taxpayer, which is extremely rare).

Reasonable Cause for Delinquent FBAR and FATCA

      • In general, a Taxpayer cannot be subject to penalties for missing the filing of delinquent FBAR and other international information reporting forms if they can show reasonable cause and not willful neglect. This is not a program per se but rather an alternative submission package in which the Taxpayer seeks to avoid or minimize penalties without formally going through the programs listed above — while also avoiding making a quiet disclosure. If you are considering a reasonable cause submission, you should speak with a Board-Certified Tax Lawyer Specialist about your different options.

FBAR Abatement & Appeal (Post-Penalty)

If a person has already been penalized, then they would not qualify for one of the amnesty programs — and instead would pursue an appeal/abatement in order to try to get the penalty waived. Since the FBAR is not a tax form, tax court is not an option in terms of fighting the penalty, at least at the current time, but taxpayers may be able to sue in federal court and not have to first pre-pay as is required in most federal refund litigation matters under the Flora Rule.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm today for assistance.