Notice 2022-36 & Foreign Accounts Compliance
Recently, the Internal Revenue Service published Notice 2022–36. This notice is intended to waive and/or abate global penalties in certain situations in which a taxpayer may have filed untimely tax returns, including certain international information returns for tax years 2019 and 2020. For some taxpayers who may have simply missed forms such as Form 3520, 3520-A, and Form 5471 – and/or filed late tax returns and received a failure-to-file/failure-to-pay penalty – this notice provides a good opportunity to get into compliance (noting, there are some ambiguities in the language of the Notice which gives the IRS some ammunition in case they want to reject the penalty abatement). Notably missing from the notice is penalty waivers for two of the most important and common international information reporting forms — FBAR & FATCA. This can impact whether Notice 2022-36 is the right path for you or not.
FBAR (FinCEN Form 114) & Notice 2022-36
The FBAR refers to Foreign Bank and Financial Account Reporting aka FinCEN Form 114. It is one of the most common international forms since it impacts hundreds of thousands, if not millions, of US taxpayers. In fact, the process used to issue FBAR penalties for noncompliance is so important that there is currently an FBAR case at the Supreme Court on the very issue of how non-willful FBAR penalties (the most common type of FBAR penalties) are assessed. Unfortunately, this particular notice from the IRS does not include FBAR as part of the penalty waiver.
FATCA (Form 8938) & Notice 2022-36
Another important acronym missing from Notice 2022–36 is FATCA, which is the Foreign Account Tax Compliance Act. Taxpayers report foreign financial assets and specified assets on Form 8938, which is filed along with their tax returns. Similar to the FBAR, Notice 2022-36 is devoid of any waiver involving the failure to file Form 8938. And, similar to the FBAR, the penalties involved in the failure to file Form 8938 can reach into the six figures when a person has missed the initial reporting — and continually missed reporting for multiple years.
Streamlined Procedures May be Better
Depending on a person’s specific facts and circumstances, they may be in a better position to submit under the Streamlined Filing Compliance Procedures than using Notice 2022–36. This is especially true in situations in which the taxpayer has FBAR and/or Form 8938 reporting requirements, as well as if they qualify for the Streamlined Foreign Offshore Procedures which waives all penalties, including FBAR and FATCA. The other issue is if a taxpayer has late filing penalties that go beyond 2019 and 2020. You should speak with a Board-Certified Tax Law Specialist that specializes exclusively in IRS offshore tax matters before making any submission to the IRS.
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Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
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