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.
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.