Letters 3708 and 3709 FBAR Penalty
Letters 3708 and 3709: The acronym FBAR refers to FinCEN Form 114. FBAR is Foreign Bank and Financial Account Reporting. FinCEN refers to the Financial Crimes Enforcement Network. The U.S. government wants to make offshore account penalties as confusing as possible. So, even though FBAR refers to Bank Accounts, it also includes Financial Accounts, such as life insurance and pension. And, even though the FBAR form is a FinCEN Form – since 2003 it is the IRS that enforces the penalty. Also, you cannot sue the IRS in Tax Court for FBAR penalties since the FBAR penalty is not a tax penalty.
When a person receives IRS Letters 3708 and 3709, it refers to the penalties associated with FBAR.
Let’s take a brief look:
Letter 3709: Notice of Penalty
The 3709 Letter is the proposed IRS penalty for the FBAR violations.
Generally, the taxpayer or other U.S. person foreign account holder has 30-days to respond and request an appeal. If the person does not seek the appeal, then the examiner will eventually close the case and assess the penalties.
The procedure is explained in IRM 184.108.40.206.3.3
- “When the FBAR penalty is proposed but not agreed, the examiner waits 30 days from issuance of Letter 3709, FBAR 30 Day Letter, to see if the person will request an appeal as provided in Letter 3709.
- If less than 365 days remain on the statute and the filer will not extend the statute, the case will need to be closed for assessment of the FBAR penalty. See IRM 220.127.116.11.3.4.
- To appeal a proposed penalty, the person against whom an FBAR penalty is proposed must submit a written protest to the examiner, postmarked on or before the designated response date listed in the Letter 3709. The group manager may grant reasonable extensions of time to provide a protest. This should be documented in the Examination Activity Record.
- A valid protest must contain all the information required in Letter 3709. If the protest is valid, see IRM 18.104.22.168.3.4 for further procedures.
- If the protest is invalid, the examiner communicates the errors and/or omissions to the person against whom the FBAR penalty is proposed or their authorized power of attorney. If there is sufficient time remaining on the assessment statute of limitations to allow the person time to correct the protest, the examiner sets a reasonable deadline for its return. If insufficient time remains on the assessment statute of limitations, inform the person or authorized POA. Solicit a consent to extend the FBAR statute of limitations in accordance with IRM 22.214.171.124.1.3. If the statute is not extended, proceed with closing the case for assessment, as outlined in paragraph (6).
- If there is no response to the Letter 3709 the case is closed unagreed to CTR Operations, the penalty is assessed, and, if not already fully paid, the collection process begins.”
Letter 3708: Notice and Demand for Payment
The IRS Letter 3708 is technically the Notice and Demand for Payment of FBAR Penalty. The letter 3708 comes after a person receives the Letter 3709, and confirms that the taxpayer already received the notice with form 3709, and now it is time to pay the penalty.
The taxpayer has 30 days to pay the amount due or seek and installment agreement. The letter goes onto say that the IRS will seek penalties if the payment is not received – in addition to the late charge.
The letter also gives the recipient the opportunity to contest the penalty with an appeal, which is done by requesting an appeal hearing through the Appeals Office. The IRS also explains the recipient can file in Federal Court – Tax Court is not an option for contesting the penalty, since it is not a “tax” and handled under title 31 and not title 26 of the U.S.C.
In conclusion, IRS Letters 3708 & 3709 can be scary.
Taxpayer will receive notice of the FBAR penalty from the IRS by way of IRS Letter 3709. The Taxpayer will then receive notice of enforcement in the form of letter 3708.
The Taxpayer has an opportunity to contest the penalty at the office of appeals, and/or file a lawsuit for refund (or defend a U.S. Government action) in Federal Court.
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