Memorandum IRS Deviation for COVID-19 FBAR Compliance
Memorandum IRS Deviation for COVID-19 FBAR Compliance Activity: As a Result of COVID-19, the Internal Revenue Service was running behind on matters involving foreign accounts compliance reporting and FBAR Violations. Recently, the IRS issued a memoranda SB/SE 04-1120-0074 explaining how to handle certain aspects of compliance, examinations and enforcement of various issues involving FBAR. The memorandum is broken down into several attachments, and each attachment is relatively lengthy. Therefore, we have summarized the memorandum briefly as well as provided a link to the main IRS memorandum so you can access it in more detail if necessary.
The gist of the memo is that even though the IRS is concerned about COVID-19, the service will not stop enforcement and compliance requirements for taxpayers on matters involving FBAR. Let’s review the basics of the of Memorandum IRS Deviation for COVID-19 FBAR Compliance Activity
This particular memoranda deals with FBAR Compliance as provided in IRM 4.26.17.
As provided by the IRM:
- Purpose. This IRM contains procedures for cases relating to the Report of Foreign Bank and Financial Accounts (FBAR).
- Objectives – consistency in audit procedures and processing of FBAR cases selected for examination.
- Revenue agents and their managers are responsible for adhering to the content of this IRM.
- Employees will perform examinations of FBAR returns and determine compliance.
- Audience. This IRM is for all Revenue Agents and their managers of SB/SE and LB&I responsible for ensuring compliance with the reporting and record keeping requirements of the FBAR.
- Policy Owner. The Director, SB/SE Examination, Specialty Policy.
- Program Owner. Director, Examination – Specialty Examination owns Bank Secrecy Act.
- Primary Stakeholders. IRS employees in all operating divisions who are responsible for ensuring compliance with the reporting and record keeping requirements of the FBAR. IRS Office of Chief Counsel employees who provide guidance and clarification on interpreting laws related to FBAR provisions.”
Why IRS Issued FBAR Memorandum SBSE 04-1120-0074
The purpose of this memorandum is to deal with FBAR compliance during the pandemic of COVID-19.
As provided by the memo:
“This memorandum issues updated guidance for Report of Foreign Bank and Financial Accounts (F BAR) compliance activity in the ongoing COVID-19 environment. Please ensure this information is distributed to all affected employees within your organization.
Purpose: It remains vitally important for employees to be sensitive to the individual circumstances of filers1 and provide appropriate administrative actions commensurate with the situation. This memorandum provides updated guidance to address unique operational circumstances of the COVID-19 pandemic.
Background/Source(s) of Authority : The health, safety and well-being of IRS employees, filers, and representatives continues to be our primary concern. As the country and IRS continue with the phased approach to reopening, we continue to monitor the COVID-19′ situation and provide updated guidance
Procedural Change: This memorandum provides specific guidance regarding:
Resuming IFBAR Compliance Activity (Attachment 1)
Initiating New IFBAR Exami nations (Attachment 2)
Limiting1 I n – Person Contacts (Attachment 3)
FBAR Mailing Priorities for Frontline Exam Groups (Attachment 4)
Shipping Electronically Processed FBAR Cases (Attachment 5)
Electronically Processing Certain FBAR Cases (Attachment 6)”
Resuming FBAR Compliance Activity: Attachment 1
“Statutes must be reviewed on all cases where FBAR compliance activity was postponed and is now being resumed.
Note: Postponement for time-sensitive IRS actions in Notice 2020-23 does not apply to FBAR. FBAR penalties do not arise under the internal revenue laws and therefore are not a tax that can be postponed pursuant to Treas. Reg.
301.7508A-1(c)(2). Whether an approved Form 13535, Related Statute Memorandum (RSM), has been secured is irrelevant to this issue.
Contact the filer by phone using soft contact procedures. The purpose of the contact is to advise the filer The People First Initiative has expired, compliance activity is resuming, and, if less than 180 days remain on the assessment statute expiration date (ASED), that the statute needs to be protected.
If ASED expires in less than 180 days
Solicit an FBAR statute extension (Consent to Extend the Time to Assess Civil Penalties Provided by 31 U.S.C. § 5321 for FBAR Violations, template attached) following IRM 188.8.131.52.1.3, Extending the FBAR Statute of Limitations. Generally, at least 10 calendar days from the date the consent is issued should be allowed for the filer to respond.”
What Does Attachment 1 Mean
Essentially, this means that the Internal Revenue Service wants to protect the statute of limitations on FBAR related matters. In addition, notice 2020-23 will not apply specifically to FBAR, since FBAR is not a tax matter per se (although penalties are enforced by the IRS).
The IRS will first reach out with a self procedure before engaging in more aggressive tactics.
*Notice 20-23 is the Update to Notice 2020-18, Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic
Initiating New FBAR Examinations: Attachment 2
“Use Letter 4265, FBAR Appointment Letter, or another letter (including the required COVID language in Letter 4265) approved by the frontline manager to initiate a new FBAR examination. When the filer responds to the letter, initial contact must adhere to soft contact procedures and include an assessment of the impact of COVID-19 on the filer.
The initial contact letter does not offer to postpone the examination. However, based on the filer’s circumstances, postponement or other action may be appropriate; discuss with the frontline manager. If FBAR compliance activity is deferred, the statute is protected and frontline manager approval is secured, update the ERCS status code to 14. While in Status 14, no additional time should be applied to the case. All case actions and delays must be documented on Form 9984, Examining Officer’s Activity Record.
What Does Attachment 2 Mean
That means that when initiating new examinations, the Internal Revenue Service wants the agents to follow certain procedures — including issuing a letter 4265, while still utilizing soft contact procedures. The soft contact procedures are to gauge how the taxpayer has been impacted by COVID-19. And, if appropriate the agent should postpone the examination depending on whether the taxpayer has been impacted by COVID.
Limiting In-Person Contacts: Attachment 3
“In-person contacts must be limited to the extent possible. Alternative methods to conducting the fact-finding phase of the examination in person should be exhausted before considering an in-person contact. Alternative methods include:
- Conducting interviews by phone or video conference (if available)
- Receiving summoned testimony by phone. Note: The issued summons must include the place and time for appearance (e.g., IRS office). After issuance, with mutual agreement, arranging to accept testimony by phone in lieu of an in-person appearance is
- Mailing records to an IRS office
- E-Faxing records
- Emailing records following guidance in NHQ-01-0620-0002″
What Does Attachment 3 Mean
When it comes to FBAR Audits and examinations, the Internal Revenue Service is limiting in person contact to only where it is required and necessary. rather, The IRS wants the agents to pursue alternative methods such as telephone, video conferencing, mail and fax.
FBAR Mailing Priorities for Frontline Exam Groups: Attachment 4
“Mailing/shipping physical FBAR case files or documents from frontline examination groups is authorized in the following priority order:
Payments to CTR Operations can be sent effective immediately. Follow IRM 184.108.40.206.4, Closing the FBAR Case – Payment and Collection. Clearly identify on Form 3210 the date payment was received. CTR Operations will use this date to post the payment, ensuring accurate interest and failure-to-pay penalty.”
What Does Attachment 4 Mean
This portion of the memo deals more specifically with how to prioritize the mailing or shipping FBAR case files. the priorities will vary based on whether there was a protest or non-protested case.
Shipping Electronically Processed FBAR Cases Attachment 5
“Any year electronically processed pursuant to SBSE-04-0620-00687 or Attachment 6 of this memo must follow these guidelines when the case is authorized to ship per Attachment 4“
Electronically Processing FBAR Cases: Attachment 6
“The COVID-19 pandemic continues to significantly impact FBAR operations, including closed case processing performed by CTR Operations. It is necessary to expand use of electronic case processing procedures beyond imminent statute and limited other cases as previously authorized in SBSE-04-0620-006812.
The following procedures are required for ALL FBAR years, EXCEPT protested years with at least 395 days remaining on the assessment statute of limitations. These protested years cannot follow these electronic processing procedures because doing so prohibits an Appeals hearing prior to assessment. Differences between pre-assessment and post-assessment Appeals hearings are significant. See IRM 220.127.116.11.3.4, Closing the FBAR Case Appealed.
- Follow IRM 18.104.22.168, Closing the FBAR Case, to prepare the case for closure. See Attachment 1 for a list of documents approved for electronic
- When the case is ready to “close”, Exam Group Managers should email — CTR Operations Supervisory Tax Law Specialist.
- Use email subject line, “Electronic Processing Package – [name control]”.
- The email must include:
- Case name(s),
- FBAR period(s) ready for closure and the statute date of each,
- Comment if IRM-required approvals (see IRM 4.26.16, IRM 4.26.17) were secured from the group manager, Operating Division FBAR Coordinator, and for willful penalties proposed, Counsel,
- Form 13536, FBAR Monitoring Document (FMD), with disposition information and in “Date Closed from Group” field, the notation “COVID-19: Emailed CTR Ops MM/DD/YY”, and
- If penalties are proposed, Form 13449 signed by the filer/authorized POA if agreed; if unagreed, submit a copy of the issued Form
- Print the above-referenced email for the physical case file; attach it behind the closing FMD retained in the case
- CTR Operations: Use the information received in the above email package to record the disposition and case shipment status in the FBAR Database. In the database field “Date Closed from Group”, record the notation “COVID-19: Awaiting Shipment as of MM/DD/YYYY” where MM/DD/YYYY is from “Date Closed from Group” on the FMD included in the email
- If penalties are proposed, CTR Operations Supervisory Tax Law Specialist will email the Exam Group Manager Form 13448, Penalty Assessments Certification Summary (Title 31 “FBAR”), confirming the amount and date of the FBAR penalty assessment.
- Print the Form 13448 received from CTR Operations, write in red in the top margin “Exam Copy” and attach it to the front of Form 13449 in the physical case
- Immediately review for accuracy and report any discrepancies to — subject line, “Assessment Discrepancy – [name control]”.
- When electronic processing procedures are completed:
- If case shipment is delayed pursuant to Attachment 4, the Servicewide mandatory telework directive, or other COVID-19 related guidance, update the ERCS status (e.g. Status Code 12 or 13) to Status Code 19. Once in Status 19, a case is deemed ready to be shipped/closed and no additional time should be applied. If circumstances warrant further examination (e.g. additional documentation is submitted by the filer), return the case to the appropriate status (e.g. Status Code 12) and work as
- If case shipment is NOT delayed pursuant to Attachment 4, the Servicewide mandatory telework directive, or other COVID-19 related guidance, do not update the ERCS status code at this time. Proceed to Step #6.
Any electronically processed case must follow additional shipping guidelines in Attachment 5 when the case is authorized.”
What Does This Mean
The IRS is implementing more electronic case processing initiatives to ensure statutory deadlines are maintained.
In conclusion the Memorandum IRS Deviation for COVID-19 re: FBAR compliance is a new important memoradum issued by the IRS in late 2020. The reason IRS issued FBAR Memorandum 04-1120-0074 is because the Internal Revenue Service is aware that COVID-19 has had a serious impact on the way FBAR cases are handled. As a result, in order to protect the IRS personnel along with the general public, the service is modifying their compliance procedures. This is being done with the understanding that individuals and others who are (or about to be) under FBAR audit may have been impacted by COVID-19. Still, the IRS is moving forward and pursuing FBAR related matters.
Meet our International Tax Law Specialist Team
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure and FBAR compliance.
Contact our firm today for assistance.