What is FBAR?
FBAR stands for Foreign Bank Account Reporting. According to the IRS website a United States person is required to file an FBAR if, “The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year to be reported."
The IRS has been delegated authority to assess FBAR civil penalties. These penalties have varying upper limits, but no floor. The IRS examiner has discretion in determining the amount of the penalty. Penalties can be applied to various accounts as well as on a year to year basis. For the US citizen with foreign financial accounts this makes it all the more important to be sure that they are in compliance.
Official IRS Website
What is the process?
Initial consultation is free via phone or email. All communications are confidential and attorney - client priviledged During this initial consultation we learn the basic facts surrounding a prospective problem. If we decide that legal counsel is necessary we will get back to you with a proposal that includes a nominal retainer. You can either accept and send the retainer or choose not to proceed. There is no obligation.
This websites main purpose is to provide information about FBAR. We also provide information about other issues that our law firm deals with, such as international retirement planning and renunciation of US citizenship.
What is our approach?
The vast majority of FBAR related issues are not remotely criminal . Our goal is to get you into compliance without breaking the bank.
- OVDI is not appropriate for most with innocent FBAR related problems, it just generates additional legal fees. Too many lawyers have been using the cloud of criminal issues to justify large retainers.
- OVDI followed by “opt outs” has involved extensive IRS review. If a lawyer is involved expect a significant increase in cost.
- The “Streamlined” procedure makes sense for many, it has now been liberalized to allow greater tax liability but the boundary line between high risk and low risk remains uncertain. Therefore, the extent of review is also uncertain.
- Corrective filings (aka “quiet disclosure”) remains a viable option for many with good “reasonable cause” arguments. You should always assume these filings will be looked at. Do not assume they will “fly under the radar”.
- For most of my clients, it comes down to becoming compliant in the most efficient manner (lower professional fees)
- The bottom line is: how will the IRS will exercise “discretion” when it comes to FBAR penalties? Unless there are unfavorable facts present (substantial unreported income, illegal income or intentionally hidden assets) or the “reasonable cause arguments” look weak, advisors should argue for no penalty and a warning letter.
From the sheer number of taxpayers with FBAR related compliance problems, a reasonable person would infer that what we have is a systemic problem rather that anything intentional or negligent .
US residents – the IRS appears to be adopting a more lenient attitude to USC living abroad (that is also where there has been extensive lobbying effort). However, many resident in the US have sympathetic stories especially technology professionals from India. Thousands have financial accounts back in India, typically to take care of elderly parents. This certainly does not fit the paradigm of the wealthy with Swiss bank accounts.
Data available so far indicates that the average FBAR penalty paid is totally out of proportion to the actual tax liability that ends up being owed. Those whose facts closely resemble an intent to evade tax actually end up paying a lower proportion of FBAR penalty to tax owed. For example, the civil tax fraud penalty (a very serious one, just short of a criminal issue) is 75% of the related tax liability. That should be compared to the FBAR penalties that are potentially several multiples (say 300%, 500%) of the additional tax liability. That is wrong and lawyers should be arguing for significantly reduced FBAR penalties or just warning letters.
The fact remains that examiners and their superiors can do significant damage to these innocent taxpayers. The good news is that the IRS is becoming abundantly aware of the number of let’s say slightly negligent taxpayers…as opposed to their original views that these individuals were all potential tax frauds. Hopefully a cultural shift is taking place at the IRS. The liberalization of the “Streamlined” procedure is a positive step, but many improvement remains.
A final note, for many the calculation of their US income tax remains a fundamental problem. This is due to complexity and gray areas related to PFIC (foreign mutual funds) and foreign retirement plans (Forms 3520 and 3520-A).