FBAR Voluntary Disclosure
FBAR Voluntary Disclosure: When a person has late or delinquent FBAR, and they are unable to certify under penalty of perjury to the IRS that they are non-willful, they will not qualify for the Streamlined Procedures, Delinquency Procedures or Reasonable Cause. Instead, the taxpayer submits to the Voluntary Disclosure Program (VDP). Unlike the Streamlined Procedures, the submission process for Voluntary Disclosure of Foreign Accounts is more detailed. It also involves a more comprehensive submission (6-years of tax returns) and more complicated penalty analysis.
While the penalty will generally be higher under than it would be under the Streamlined Program — or other non-willful alternatives — it beats a criminal investigation or visit from the Special Agents.
FBAR Voluntary Disclosure Procedure
There are multiple steps involved when disclosing the FBAR through Voluntary Disclosure to the IRS.
We will summarize the basics of each step.
Step 1: Preclearance Letter on Form 14457 Part 1
The first step is to submit the Preclearance Letter.
Under previous OVDP (Offshore Voluntary Disclosure Program), there was no standard preclearance form.
When the introduction of revised Voluntary Disclosure Program (VDP), the IRS revised the previous OVDP Form 14457 and turned it into the standardized preclearance form.
Step 2: Approval and Form 14457 Part 2
Once you are approved for Voluntary Disclosure, the next step is to provide more detailed information about the accounts. along with facts to support the submission.
There are various pitfalls and landmines to be aware of, especially when drafting the personalized statement.
Step 3: Acceptance and Preparation of Tax Return and Penalty
Once you have been accepted into the program, the next step is to prepare the tax returns and international information returns to the IRS.
Step 4: FBAR Penalty Negotiation
There is no standardized penalty under VDP.
With Voluntary Disclosure, the Agents will generally go by the code and IRM — and issue a 50% FBAR penalty.
There is room for potential negotiation and mitigation of FBAR penalties based on various factors.
Step 5: Closure of the FBAR Penalty issue
The matter closes, and the Taxpayer can exhale a sigh of relief — and regain their peace of mind.
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