Beware of IRS Letter 6291 for Noncompliance with FATCA
This is a brief article that serves as an update to a previous article we authored last year because the issue is becoming much more common for Taxpayers who have undisclosed foreign accounts or assets abroad and may not have properly reported to the IRS. Each year, US Taxpayers who have overseas accounts, assets, and investments (and meet the threshold for filing) are required to report this information to the Internal Revenue Service on Form 8938. The requirements are in accordance with Internal Revenue Code Section 6038D (information with respect to foreign financial assets). If the Taxpayer receives this type of IRS letter, it is important that they take action to avoid being audited and losing the ability to enter one of the offshore amnesty programs voluntarily. Let’s go through the basics of the IRS Letter 6291:
Foreign Bank Contacts IRS
The Internal Revenue Service sends a letter to the taxpayer letting them know that a Foreign Financial Institution has provided the IRS with information (in accordance with the exchange of information under the FATCA agreement) about foreign accounts in which the US Taxpayer has not properly disclosed (or disclosed inaccurately).
Common Scenarios that Cause an IRS Letter 6291 Notice
Here are some common reasons why this would happen:
Taxpayer may have multiple accounts or sub-accounts and they were not all accounted for on the FBAR.
A parent or relative of the Taxpayer may have included the Taxpayer on various accounts without notifying the Taxpayer (such as elderly parents).
Taxpayer has dormant or inactive accounts that are all but forgotten to the Taxpayer but the bank is reporting them to the IRS as open accounts.
Options for Getting Into Offshore Compliance Post-IRS Letter 6291
Technically, receiving a 6291 letter would not constitute an audit sufficient to disallow the Taxpayer from making a voluntary submission to the IRS under one of the offshore amnesty programs such as the Streamlined Procedures; Delinquency Procedures; Voluntary Disclosure Program, or Reasonable Cause. Which of these programs the Taxpayer would qualify for depends on the specific facts and circumstances of the Taxpayer’s situation — and they should consider speaking with a qualified Board-Certified Tax Law Specialist before making any proactive representation to the IRS.
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