FBAR Examinations: The IRS has significantly increased enforcement of FBAR Foreign Accounts Compliance, including assessing FBAR Penalties. Many years ago, before the introduction of FATCA (Foreign Account Tax Compliance Act), and the renewed interest in Foreign Bank and Financial Account Reporting, hiding money overseas was easy. While offshore banking is not per se illegal, the Internal Revenue Service has developed new and improved methods for examining foreign accounts. And, since FBAR penalties are heavily enforced, it is important to be aware of how the IRS investigates you, what you need to do to be compliant — and what to do if you are out-of-compliance.
We will summarize the basics of FBAR examinations.
Common FBAR Examinations for Offshore Noncompliance
The IRS has many tools at its disposal.
Here is an introduction to 5 methods the IRS uses to investigate FBAR Violations.
Bank FATCA Reporting
The U.S. Government has entered into FATCA (Foreign Account Tax Compliance Act) Agreements with more than 110 countries. As a result, more than 300,000 FFI (Foreign Financial Institutions) are actively reporting U.S. Persons who own foreign accounts to the IRS. The IRS can use this information to cross-reference taxpayer filings and determine if the person is offshore compliant — this is a common way Taxpayer find themselves in an FBAR Examination.
Missing or Incorrect Form 8938
When a Taxpayer files a tax return, they may have a Form 8938 requirement. Form 8938 is used by U.S. Persons (Individuals and Entities) who have assets or accounts abroad. If the form is not file timely or accurately, it can lead to further scrutiny — which can lead to an FBAR Examination.
J-5 is a group of countries (including the U.S.) that are working together to crack down on offshore tax fraud. Based on the information the IRS obtains from other countries on matters involving offshore, it can lead to an FBAR Audit, along with other international tax examinations.
When a Taxpayer is under audit for non-compliance with any type of domestic or offshore matter, the IRS will issue an IDR. An IDR is an information document request. Even if the audit is not focused on international tax related issues, the IDR will generally ask about unreported income and accounts. This can lead to an expanded audit on issues involving FBAR and other offshore matters.
Sometimes, the IRS will know you have not reported the accounts properly on the FBAR, and then examine you byway of an FBAR Audit. This is common when a 3rd party may have reported joint or signature authority accounts that included your name — but you did not report the FBAR as well — and this leads to a more complicated FBAR examination.
Missed the FBAR Reporting Due Date?
When a person misses the FBAR deadline for reporting, then the FBAR is considered delinquent. A taxpayer cannot just go back and file a late FBAR. Rather, they are required to submit to one of the Voluntary Disclosure/Tax Amnesty Programs. Otherwise, it may be considered a quiet disclosure, which may result in significant fines and penalties including tax fraud, willfulness penalties, and a visit from the IRS special agents.
Our FBAR Lawyers Represent Clients in FBAR Examinations
Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure and FBAR examinations.
Contact our firm for assistance.