Federal case and after federal case continues to come out providing real-life examples of the pitfalls of filing a Streamlined Filing Compliance Procedure (“SFCP”) with the IRS when the facts suggest willfulness rather than non-willfulness. This is not surprising because the distinction between willful and non-willful behavior is not clear. Indeed, because most federal courts have recognized that willful conduct includes not only intentional conduct—but reckless conduct as well—tax professionals and tax professionals alike must exercise extreme caution in vetting all of the relevant facts to ensure that they can support their conclusion of non-willfulness.
The recent Flint decision from the United States Court of Federal Claims is a great example of what can go wrong in making an ill-advised SFCP submission. See Flint v. U.S., No. 21-1202T (Fed. Cl. Aug. 23, 2022). In that case, the taxpayer failed to file FBARs regarding significant holdings in foreign accounts. After the taxpayer’s husband passed away, the taxpayer attempted to regain compliance through the IRS’s Streamlined Domestic Offshore Procedures (“SDOP”). However, the IRS flagged the submission and ultimately assessed the maximum willful FBAR penalties against her because the IRS determined that the taxpayer was willful: a conclusion that can result in, similar to here, the taxpayer being removed from the SFCP.
This article discusses the Flint decision. Prior to a discussion of that case, however, this article provides some background on FBAR penalties and the SFCP. After discussing the conclusions in Flint, it provides some helpful insights for tax professionals and taxpayers who want to seek refuge under the SFCP.
FBAR Penalties and the IRS’s Streamlined Filing Compliance Procedures.
FBAR Penalties
Title 31 houses the Bank Secrecy Act (the “BSA”). The BSA requires U.S. residents or citizens to keep records and/or file reports when the resident or citizens makes a transaction or maintains a relationship with a foreign financial agency. The report—in these instances—is referred to as an FBAR.
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