Foreign Account (FBAR & FATCA) Penalties Under 2022-36
Recently, the Internal Revenue Service published Notice 2022–36. This notice is intended to waive and/or abate global penalties in certain situations in which a Taxpayer may have filed untimely tax returns and certain international information returns for tax years 2019 and 2020. For some taxpayers who may simply have missed forms such as Form 3520, 3520-A, and Form 5471 – and/or filed late tax returns and received a failure-to-file/failure-to-pay penalty – the notice provides a good opportunity to get into compliance (noting, there are some ambiguities in the language of the Notice which gives the IRS some ammunition in case they want to reject the penalty abatement). Notable missing from the Notice is penalty waivers for two of the most important and common international information reporting forms — FBAR & FATCA.
Notice 2022-36 for FBAR
The FBAR refers to Foreign Bank and Financial Account Reporting aka FinCEN Form 114. It is one of the most common international forms since it impacts hundreds of thousands if not millions of US taxpayers. In fact, the process used to issue FBAR penalties for noncompliance is so important that there is currently an FBAR case at the Supreme Court on the very issue of how non-willful FBAR penalties (the most common type of FBAR penalties) are assessed. Unfortunately, this particular notice from the IRS does not include FBAR as part of the penalty waiver.
Notice 2022-36 for FATCA Form 8938
Another important acronym missing from notice 2022–36 is FATCA – which is the Foreign Account Tax Compliance Act. Taxpayers report foreign financial assets and specified assets on Form 8938 — which form is filed along with their Tax Return. Similar to the FBAR, Notice 2022-36 is devoid of any waiver involving the failure to file Form 8938. And, similar to the FBAR, the penalties involved in the failure to file form 8938 can reach into the six figures when a person has missed the initial reporting — and continually missed reporting for multiple years.
Are Streamlined Procedures a Better Option?
Depending on a person’s specific facts and circumstances, they may be in a better position to submit under the Streamlined Filing Compliance Procedures than using Notice 2022–36. This is especially true in situations in which the taxpayer has FBAR and/or Form 8938 reporting requirements, as well as if they qualify for the Streamlined Foreign Offshore Procedures which waves all penalties, including FBAR and FATCA. You should speak with a Board-Certified Tax Law Specialist that specializes exclusively in IRS offshore tax matters.
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