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IRS FBAR Reporting Notes and Caution Regarding Streamlined Application Filings

Recently released IRS FBAR reporting notes detailed some interesting facts regarding FBAR filings since the program’s inception in 2007.  In 2007 the IRS received 332,000 FBARs compared to more than 1 million FBAR reports for tax year 2015.  The IRS noted it has charged hundreds with tax evasion and willful failure to report foreign accounts.  This is just the beginning as the IRS unpacks a huge trove of information provided by offshore banks, investment houses, financial institution and sovereign tax agencies regarding US taxpayers with offshore bank accounts and assets.

The two primary vehicles for coming into compliance with IRS FBAR reporting are the Offshore Voluntary Disclosure Program or OVDP and the Streamlined Domestic (or Foreign) Offshore Procedures.  The taxpayer must make a “complete, transparent and accurate” disclosure of all offshore information under these programs.  Those who file under the OVDP will face a 27.5% penalty of the highest aggregated balance of all offshore accounts for each applicable year in the eight year look-back period, and 50% if their institution is listed on the IRS list of “Foreign Financial Institutions or Facilitators.”  In exchange, the IRS agrees not to pursue criminal charges for tax evasion over these years.

The streamlined application is obviously much more attractive to US taxpayers as it offers a modest penalty of 5% (no penalty for foreign nonresident taxpayers).  The recent IRS FBAR reporting notes stated the streamlined application program does not release US taxpayers from criminal prosecution, and no “pre-clearance” procedure (such as the OVDP’s process) is available to confirm timely disclosure and acceptance.  Beginning in January 2016, the IRS added substantial detailed disclosure requirements to explain the facts surrounding the “failure to timely report all income, pay all tax and submit all required information,” including FBARs.

Here is the risk: Every “fact” a taxpayer discloses on this application can and will be used against them by the IRS in the determination of “willful versus non-willful” as well as any resulting criminal prosecution.

Allen Barron’s international and domestic tax team are prepared to help you to come into compliance with all IRS FBAR reporting requirements.  The IRS FBAR reporting notes make it very clear that many US taxpayers may face a costly surprise when their streamlined application is denied.  Learn more about IRS FBAR preparation and filing and coming into compliance by calling 866-631-3470 for a free consultation.  Learn about the protections of the attorney-client privilege and all Allen Barren can do to protect your interests and help you come into compliance.