FBAR Penalty Relief
At Freed Maxick, our experienced International Tax team can assess your Foreign Bank Account Report (FBAR) requirements, assimilate the necessary information, and prepare your current and past due FBARs. We also have considerable experience helping taxpayers that have not been historically compliant navigate within the IRS guidelines and minimize or eliminate their potential penalties through the various IRS Voluntary Disclosure Programs and other strategies that are available.
Starting in 2009, the IRS has offered delinquent FBAR filers the opportunity to come forward under Voluntary Disclosure Programs, helping those with unreported offshore accounts get current with their taxes and FBAR filings. Each of the programs has provided different penalty frameworks for taxpayers coming forward. Below is a short history of the various programs offered:
2014 Offshore Voluntary Disclosure Program
Effective July 1, 2014, the IRS has modified the 2012 Offshore Voluntary Disclosure Initiative (OVDI), which is now referred to as the 2014 OVDP. This is a continuation of the 2012 program, but with modified terms. Some key changes to the program include:
- The highest penalty category has been increased to 50% under certain circumstances and now all penalties must be paid at the time of the OVDP submission.
- The existing reduced penalty percentage for certain non-willful taxpayers has been eliminated due to the expansion of the Streamlined Procedures.
- Taxpayers will now be required to submit all account statements as part of the submission.
As with the 2012 OVDI, there is no set deadline for people to enter into the program, however, the terms of the program could change at any time going forward. For example, the IRS may increase the penalties or even end the program entirely at any point.
Similar to the previous OVDI programs, if a taxpayer believes that the penalties applicable to them under the 2014 OVDP are disproportionate there are provisions for them to “opt out” of the program. Once a taxpayer opts out, they will undergo an IRS examination under which they can attempt to get the IRS to impose a lesser penalty.
IRS Streamlined Procedures
On June 26, 2012, the IRS announced new streamlined filing procedures for non-resident U.S. taxpayers. Some of the highlights of this program are as follows:
- This procedure is available for non-resident U.S. taxpayers that were outside of the U.S. for at least 330 full days and did not have a U.S. abode in any one or more of the most recent three years for which the U.S. tax return due date has passed.
- The Streamlined Procedures were implemented in recognition that some taxpayers living abroad have failed to timely file U.S. federal income tax returns or FBARs.
- This program is designed for taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The IRS will review all submissions, however, they will not assert penalties in accordance with this program.
Effective July 1, 2014 the IRS expanded the Streamlined procedures to accommodate a wider group of U.S. taxpayers with unreported foreign accounts. Some of the notable revisions to these procedures are:
- The program is also now available to certain taxpayers residing in the United States.
- The requirement that a taxpayer have $1,500 or less of unpaid tax per year has been eliminated.
- The required risk questionnaire has been eliminated.
- There is now a requirement that the taxpayer certify that all of their failures to comply were due to non-willful conduct.
- Penalties will still be waived for U.S. taxpayers residing outside of the United States. However, taxpayers residing in the United States will face an offshore penalty equal to 5 percent of the foreign financial assets and must be paid at the time of the Streamlined submission.
Please contact a member of our International Tax team. Freed Maxick, can assist in assessing FBAR filing requirements, assimilating the necessary information and preparing your current and past due FBARs. We have helped many taxpayers navigate through the Offshore Voluntary Disclosure Initiative (OVDI) program with no penalties.