A Streamlined FBAR Penalty Excludes Some Accounts & Assets

Streamlined FBAR Penalty

Streamlined FBAR Penalty

Streamlining the FBAR Penalty: When it comes to FBAR penalties and offshore disclosure, one of the best ways to reduce the offshore account and asset penalties for taxpayers who qualify is to submit to the streamlined program. Under the streamlined program, the the FBAR and FATCA penalties are streamlined into either a penalty waiver (streamlined foreign) or 5% title 26 miscellaneous offshore penalty  (streamlined domestic).  Even though the streamlined FBAR penalty cannot be waived, some accounts and assets are included in the penalty base. Let’s go through a few basics of what is not included in the offshore FBAR penalty computation:

Foreign Real Estate – Individually Owned

When a taxpayer owns foreign rental real estate, that real estate is not included in the streamlined penalty computation. Even though foreign rental real estate property technically generates foreign income, it is not computed into the penalty base. Conversely, if the foreign real estate is owned by a foreign corporation, the foreign Corporation value is included in the FBAR penalty and a Form 5471 or 8938 may be required.

Canadian RRSP & RRIF

Unfortunately, not all foreign pension and retirement is excluded from the streamlined penalty.  But, the IRS has carved out an exception for Registered Retirement Savings Plans (RRSP) and RRIF (Registered Retirement Income Funds).   When a taxpayer computes their offshore penalty, the value of these retirement funds are not included in the penalty base.

Employee Accounts – Signature Authority

The idea behind the streamlined program is that the IRS penalizes you on the unreported accounts and assets that you own, that were previously not reported. In a situation in which an employee has signature authority over a foreign account – but not an ownership interest in that foreign account — the IRS typically does not issue any penalty for accounts in which a person merely has signature authority.

Why?

Because the account does not belong to the taxpayer and therefore it is not included in the offshore penalty computation.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.