Why the Surge of FBAR Streamlined Audit Cases: 4 Reasons
Why the recent surge of FBAR streamlined audit cases? Recently, our international tax law firm has received numerous inquiries from taxpayers who are being audited by the IRS for streamline disclosure submissions that were made by other attorneys/tax professionals. These other attorneys did not charge a flat-fee upfront (to include examinations, audits and IRS follow-up), and the taxpayers were convinced into believing there was 100% chance that they would get through the streamline program without an audit. Now, both the attorney and the CPA want additional fees to represent them in the audit.
The question is, why this sudden increase in FBAR streamlined disclosure audits and how to protect your wallet.
Here are four (4) reasons why audits for streamlined disclosures are on the rise.
Future Tax Year Audit Relating Back
FBAR streamlined audit cases stemming from “relate-back” examinations are on the rise.
Let’s say a taxpayer submits a streamlined disclosure submission that includes tax years 2016-2018 for amended tax returns under SDOP. Chances are the taxpayer will be subject to a six-year statute of limitations, and it will extend from the time this submission was made (at least to the foreign aspect of the submission.)
It is now 2021, and for reasons outside of international tax related compliance, the taxpayer is being audited by the IRS.
While under examination, the taxpayer makes a statement (or statements) that seem to conflict with the statements that were provided in the streamlined submission. It could be an innocent mistake in that there were additional assets or accounts that were not included in the submission which were recently discovered by the IRS — possibly through foreign bank FATCA reporting.
More concerning could be that the examiner who is conducting the audit (not the same person who approved the submission earlier) has additional questions about willfulness.
*This is one important reason why flat-fee, full-service representation is necessary in streamline disclosure cases. Otherwise, the legal fees for the attorney and CPA represent you during the audit can end up in the tens of thousands of dollars.
Willfulness Certification at Issue
One key component of any streamline disclosure is the non-willful streamlined certification; it is signed under penalty of perjury. Over the past six years that the standalone program has been in place, we have been approached by many taxpayers who simply did not qualify for streamlined. When we tell them this, they go out and find other less-experienced attorneys who will still take them streamlined despite the fact that they were willful.
If the IRS launches and international investigation for other reasons, it may lead back to the taxpayer (joint accounts with other people who are now under audit, unreported business and trust audits, etc..) If the IRS learns that the Taxpayer made false statements in their application, it may lead to willful penalties and worse. (Sidenote: just having minimal unreported income does not negate the willfulness component. See what happened to this person.)
FBAR streamlined audit cases can also stem from future noncompliance.
Once the streamlined submission is complete, the taxpayer has a responsibility to continue remaining in tax and reporting compliance for future years. If a taxpayer submits to the streamlined program, but then does not remain in compliance for subsequent years, it can lead to an audit.
Streamlined Audits are on the Rise, so Be Prepared
In conclusion, the stand-alone streamlined procedures were only introduced in 2014. Most of these submissions fall under the six-year statute of limitations, and the IRS does not move very quickly when it comes to initiating audits.
It is important that taxpayers realize that just because an attorney says they have 100% success rate, it does not really mean the submission is over. It is not completed until the statute of limitations has completely expired.
It is also important to understand the attorney/tax prep fee structure before retaining an hourly attorney.
We Specialize in FBAR Voluntary Disclosure & Compliance
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure and FBAR Streamlined Audits Cases.
Contact our firm today for assistance.