Calculating FBAR Penalties Under the Penalty Mitigation Guidelines
Example 1: Assume that John has an undisclosed offshore account with a maximum account balance of $ 40,000 (USD) in tax year 2012. He decides to make a quiet disclosure. Assume that he otherwise satisfies the conditions for penalty mitigation. The best way of analyzing this problem is to do so in three-steps: Step 1: […]
Can I Raise Any Defenses to the FBAR Penalty?
Just because the IRS thinks that an FBAR penalty is warranted does not make it “official.” Indeed, a taxpayer can challenge the assertion. In doing so, he’d be putting the IRS’s feet to the fire, by holding them up to their burden of proving willfulness in court. To the extent that the IRS has asserted […]
What is the Penalty Amount for a Nonwillful FBAR Violation?
For most cases involving multiple nonwillful violations, examiners will recommend one penalty for each open year, regardless of the number of unreported foreign financial accounts. In those cases, the penalty for each year will be determined based on the aggregate balance of all unreported foreign financial accounts, and the penalty for each year will be limited to $ […]
What is the Penalty Amount for a Willful FBAR Violation?
For cases involving willful violations over multiple years, examiners will recommend a penalty for each year for which the FBAR violation was willful. In most cases, the total penalty amount for all years under examination will be limited to 50 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination. Then […]
How Are the Penalty Mitigation Guidelines Used To Calculate FBAR Penalties?
In the same way that the decision to impose a FBAR penalty is discretionary, so too is the decision for what the actual amount of that penalty should be. Because FBAR penalties do not have a set amount, the IRS has developed penalty mitigation guidelines to assist examiners in exercising their discretion in applying these penalties. The mitigation […]
Lowering the Bar for Willfulness for FBAR Penalties
To the extent that the examiner attempts to assert a willful FBAR penalty, the burden is on the IRS to show that the violation was, in fact, willful. The IRS has embraced the same definition of willfulness here, in the civil context, as the one that applies in criminal tax cases: “an intentional violation of a known legal […]
The FBAR Penalty
The IRS has authority to assert FBAR civil penalties. Before delving any deeper into the FBAR abyss, an important point must be made in order to avoid any confusion or misunderstanding. The FBAR penalty only exists outside of the OVDP and streamlined framework. There is no such thing as an FBAR penalty within OVDP or the streamlined procedures. […]
Does gold (or cash notes) stored inside a vault in a foreign financial institution – but leased to a private company – trigger an FBAR-reporting requirement?
This blog provides guidance to U.S. taxpayers who store gold and currency cash notes abroad in private vaults – a popular investment these days considering the uncertain global economy and the sharp decline in currency values. The narrow question is whether a private vault located in a foreign financial institution is a “financial account?” If […]
Common Pitfalls to Avoid When It Comes to FBAR Reporting
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Treasury Regulations Definition of “Financial Account”
According to Treasury Regulation 31 C.F.R. § 1010.350, a “financial account” includes securities, brokerage, savings, demand, checking, deposit, time-deposit or other accounts maintained with a person engaged in banking. In 2011, the regulations expanded the term “other financial accounts” to include commodities, futures, or options accounts, insurance policies with cash value, and mutual funds or […]