The new mandatory e-filing for all FBARs, including late FBARs, just came into effect yesterday, July 1. One question that arises is whether penalties may be automatically generated by the computer?
The BSA E-Filing agency has stated it cannot discuss policies about penalties. As my blog followers are well aware, penalties can be charged whenever an FBAR is filed late (negligent failures can attract a penalty of $10,000 per account that should have been listed on the FBAR, per year). However if there is “reasonable cause” for late filing, such penalties may be waived. It would follow that if penalties were automatically assessed by the computer, then common sense indicates they should be cancelled upon a proper showing of “reasonable cause”. The electronic filing system does not ask why an FBAR is being filed late. It seems that now practitioners are concerned there may be a considerable risk that “the computer” might generate penalties automatically even when there is “reasonable cause” for the late filing. No one knows what will happen. We have to let time go by and wait to see the policy the BSA will ultimately adopt.
Currently the e-filing system does not support the capacity to attach a letter or statement explaining why the FBAR is being filed late. This capacity may become active later on. The BSA agent I spoke to said they are advising taxpayers to keep all supporting documentation on file because normally the IRS will come back to the taxpayer and ask for it.
In line with what the BSA agent told me, we are suggesting to clients that if they file late FBARs, they should seriously consider separately sending in a paper letter explaining the late filing and try to get everything in it that supports “reasonable cause”. IRS has issued a Fact Sheet on this concept of “reasonable cause” for failing to file an FBAR. We can assist clients in preparing such letters. If you are sending in such a letter on your own, make sure you reference the confirmation number you get from the e-filing of the late FBAR(s).
Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.
Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.
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