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Tag Archive for FBAR penalties

Challenging FBAR Penalties In Federal Court: FBAR Litigation

Challenging FBAR Penalties In Federal Court: FBAR Litigation

In most cases, IRS exam initiates FBAR assessments.  And, after an IRS examiner determines that an FBAR penalty is appropriate, taxpayers are generally afforded pre- or post-assessment appeals rights with the IRS Independent Office of Appeals (“Appeals”).  If Appeals agrees with IRS exam that the FBAR penalty is appropriate, Appeals will either recommend assessment (if a pre-assessment case) or sustain the assessment determination (if a post-assessment case).

But, what happens after the assessment?  The short answer:  litigation.  And as discussed more fully below, this litigation is likely to occur whether the taxpayer wants it or not due to the unique collection procedures applicable to FBAR assessments under Title 31 of the Code.

FBAR Assessments 

United States persons who have a financial interest in or signature authority over one or more foreign financial accounts located in a foreign country with aggregate balances exceeding $10,000 at any time during the calendar year must file a timely and complete FBAR.  If the United States person fails to file a timely and accurate FBAR, he or she can be liable for “willful[i] or “non-willful” FBAR penalties.

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What Is The Difference Between Willful And Non-Willful Conduct For FBAR Penalties: The Hughes Decision Provides Some

Willful And Non-Willful Conduct

FBAR penalties can be steep.  Indeed, under current law, if a taxpayer “willfully” fails to file a timely and accurate FBAR, the taxpayer may be liable for civil penalties of $129,210 per year or 50% of the balance in the accounts at the time of the violation, whichever is higher.[i]  And even non-willful violations—given the 6-year statute of limitations—can add up with civil penalties of $12,921 per year currently.[ii]

Because the amount of FBAR penalties often hinges on whether the conduct was “willful” or “non-willful,” tax practitioners must take careful notice of the distinction between the two when advising their clients of the results of failures to timely file.  Thus, a recent federal court decision out of the Northern District of California is worth a read and provides some helpful insights to tax professionals and taxpayers alike as to how to potentially distinguish between the two types of conduct.[iii]

The Facts of Hughes.

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Do FBAR Penalties Survive Death? A Texas Court Says “Yes”

Do FBAR Penalties Survive Death? A Texas Court Says “Yes”

A federal district court in Texas recently took up an interesting FBAR issue: whether civil FBAR penalties survive death? That is, if a taxpayer/account holder dies after the IRS assesses an FBAR penalty against them, do the FBAR penalties remain against the decedent’s estate?  Or do the penalties die, so to speak, along with them?

The analysis typically turns on a subsidiary question: Are the penalties, for these purposes at least, penal or remedial?  If penal, the FBAR penalties would potentially dissolve at death.  If, on the other hand, they are remedial, maybe not.

FBAR penalties can be notoriously draconian.  If a U.S. person fails to file an FBAR, the IRS can impose a civil monetary penalty.  31 U.S.C. § 5321(a)(5)(A).  The amount of the penalty can vary.  If, for example, the failure to file results from willful conduct, the statute provides for a penalty equal to the greater of $100,000 or 50% percent of the amount of “the balance in the account at the time of the violation.”  31 U.S.C. § 5321(a)(5)(C), (D).

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FBAR Penalties: Another Court Holds That FBAR Penalties Can Exceed The Regulatory Ceiling

FBAR Penalties: Another Court Holds That FBAR Penalties Can Exceed The Regulatory Ceiling

The Report of Foreign Bank and Financial Accounts (i.e., the “FBAR”) was for many years confined to the lonely backwaters of Title 31 of the United States Code—the intriguingly-named Bank Secrecy Act.  For years, compliance levels were abysmal.  But penalties were generally not enforced.  To put the situation in perspective, in the course of more than a decade, you could probably have counted the number of penalties assessed against non-compliant account holders on one hand—maybe, just maybe, two hands—at least according to contemporary reports from the Treasury Department to Congress.

But my how the times have changed.  FBAR penalties are most certainly enforced these days.  Some might argue that they are enforced with a vengeance—a vengeance that is disconnected with the purpose behind the FBAR filing requirement.  Truly, the penalties associated with failing to file an FBAR are among the most punitive civil penalties on the books.

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Is There Any Way To Avoid Paying FBAR Penalties?

Venar Ayar on FBAR Penalties

You may be able to avoid paying FBAR penalties if you qualify for a delinquent FBAR submission or the Streamlined Compliance Procedures. These voluntary disclosure methods eliminate or reduce your tax penalties while getting you into reporting compliance.

Key Insights We Will Discuss:
The qualifications for a delinquent FBAR submission or the Streamlined Procedures.
The benefits of making a voluntary disclosure.
Other options if you don’t qualify for these offshore disclosure options.

Delinquent FBAR Submissions
A delinquent FBAR submission is the simplest way to correct your failure to file FBARs. However, this option is only available if you meet the following conditions:
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Coming to America? Welcome To The Land of FBARs

Green Cards And Taxes

Thoughts From A Conversation About Green Cards And Taxes

The purpose of this is to reinforce some very simple points. I find that people always have more trouble remembering what’s simple.

Moving to America

1. Taxation of income from your remaining “non-U.S. assets”
You will be shocked to find that many of your “foreign assets” will be subject to particularly punitive U.S. taxation.

2. Reporting of your “non-U.S. assets”
If you are moving to America, you are moving from another country. You will very likely retain financial assets and bank accounts in that country. From a U.S. perspective, these assets are “foreign” and therefore a “fertile ground” for taxation and penalties.

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Record Penalties Sought In California In Latest Major FBAR Case

Helen Burggraf

The U.S. Internal Revenue Service is seeking what is said to be a record US$119.6m in penalties over what it has claimed in California district court documents were violations of the FBAR regulations, which require Americans to disclose their overseas financial accounts above a certain amount each year.

Foreign Bank Account Report penalties are famously high, which is why tax experts often stress to their clients the importance of complying, particularly as the penalties for “wilful” non-compliance are that much greater.

The case (U.S. vs Burga, No. 5:19-cv-03246-EJD), emerged in the U.S. media recently, where it was noted that court documents had claimed that Francis Burga and her late husband, Margelus Burga, had some 294 foreign bank accounts between 2004 and 2009, in Liechtenstein, the British Virgin Islands, Switzerland, Singapore, Japan, Panama, China and Vietnam, for which they had failed to file the requisite FBARs.
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Supreme Court Refuses To Review Million Dollar FBAR Penalty

Despite the taxpayer’s persistent challenges, the Supreme Court has refused to review a Ninth Circuit Court of Appeals’ decision affirming a lower court’s decision in favor of the IRS, which assessed a giant $1.2 million penalty for failing to disclose financial interests in an overseas account.

The April 30th decision, which is now final, is noteworthy for two reasons. First, it shows the magnitude of penalty that can be reached, even with respect to an individual and a single foreign account and tax year (in this case, the relevant tax year was 2006). Second, it shows the type of taxpayer arguments that courts will likely reject when reviewing an FBAR penalty case.

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CPA Advice May Not Constitute Reasonable Cause

Taxpayers have been able to rely on advice from their accountants and CPAs to meet the complicated tax filing imposed by the U.S. Tax Code. But a case currently pending in the U.S. Court of Federal Claims suggests that CPA advice may not be enough to stop the IRS from assessing FBAR penalties for non-willful reporting violations.

A current case in the United States Court of Federal Claims, Jarnagin v United States, Docket No. 15-1534-T, shows what can happen when an unsuspecting taxpayer fails to file FBAR forms after providing all the requisite information regarding the foreign account to their accountant/CPA. Read more

IRS Issues Updated Guidance For FBAR Penalties

The IRS recently issued a memorandum entitled, “Interim Guidance for Report of Foreign Bank and Financial Accounts (FBAR) Penalties.” As explicitly stated in the memorandum, its purpose is to improve the administration of the IRS’s FBAR compliance program. How so? By implementing new procedures. This guidance affects two specific IRMs: 4.26.16 and 4.26.17.

For those who thought that the IRS might have waited a couple months before making these procedures effective so as to allow tax practitioners sufficient time to get up to speed and to work out any “kinks,” that was wishful thinking. Far from enacting a “grace period,” these new procedures went into effect the very day they were published, which just so happened to be May 13, 2015. Thus, this guidance is effective immediately and Read more

Lowering The Bar For Willfulness For FBAR Penalties

The IRS has authority to assert FBAR civil penalties. Before delving into the FBAR abyss, this is a good time to debunk some FBAR myths. First, there is no such thing as an FBAR penalty within the Offshore Voluntary Disclosure Program (OVDP). The FBAR penalty exists only outside of the OVDP framework. However, there is a penalty within the OVDP that is often considered to be the equivalent of the FBAR penalty. That penalty is commonly referred to as the offshore penalty. Generally, it is 27.5% of the highest aggregate balance of all foreign accounts during the disclosure period.

Second, contrary to popular belief, an FBAR violation doesn’t automatically mean that a penalty will be asserted. Examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether a penalty Read more

Lifting The Veil On The Civil FBAR Penalty

It should come as no surprise that the IRS has authority to assess FBAR civil penalties. However, what might come as a surprise is that an FBAR violation doesn’t automatically mean that a penalty will be asserted. Why not? Examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted. For example, the examiner may determine that the facts do not justify asserting a penalty. In that case, the examiner will issue an FBAR warning letter, Letter 3800.

According to IRM 4.26.16.4, the sole purpose of the FBAR penalty is to promote compliance with the FBAR reporting and recordkeeping requirements. In exercising their discretion, examiners should consider whether issuing a warning letter and securing delinquent Read more