Reporting Foreign Accounts in the Age of Transparency

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Reporting Foreign Accounts in the Age of Transparency - Part 4

Righting The Ship

There is no extension available for filing the FBAR. If an account holder does not have all the available information to file the return by June 30th, the recommendation is to file as complete a return as possible and amend the document when the additional or new information becomes available. This is stated clearly in the instructions to the Form which goes on to say:

FBAR filers can amend a previously filed FBAR by:

Checking the "Amended" box in the upper right hand corner of the first page of the form;
Making the needed additions or correction;
Stapling it to a copy of the original FBAR; and
Attaching a statement explaining the changes.

But what if you missed the boat completely first time around? Can you right the ship?

There are Voluntary Compliance Initiative procedures that might be considered in certain cases, and certainly all the circumstances should be considered. However, very often, it may make sense to proceed simply to file the form, but attach a brief explanation as to why you are filing late. While there are stiff penalties for failing to file the FBAR - and no guarantee they will not be imposed by coming forward - the penalties may be waived based in your particular situation. Under no circumstances should you knowingly continue to not file the FBAR, since that would be regarded as a willful failure to file, according to an IRS spokesperson in Washington, DC.

You Don't Need To Shoot the Messenger!

According to the IRS Office of Professional Responsibility in a posting on their website, failure to timely file required tax or information returns, including FBARs, must also be disclosed by tax practitioners themselves on any "Application for Renewal of Enrollment to Practice Before the Internal Revenue Service".

Moreover, a practitioner must make reasonable inquiries when a client provides information that suggests possible participation in overseas transactions/accounts subject to FBAR requirements. He or she may rely on information provided by a client in good faith - but may not ignore implications learned from information provided or actually known. The practitioner is also required to advise a client of potential penalties likely to apply to a position taken, such as failing to abide by FBAR requirements.

Conclusion

As a practitioner in this area for many years, I recognize that it may come as a shock to some that these rules are being taken so seriously. It was really only in 2004 that the tiger awoke from its slumber. However, the warning should now be loud and clear that indifference to these rules entertains the significant risk of severe penalties.

For anyone still unsure, the IRS even invites questions concerning the FBAR form by calling 1 (800) 800-2877, option 2. The Age of Transparency would seem to be in full swing...

Circular 230 Disclosure: Internal Revenue Service regulations provide that, for the purpose of avoiding certain penalties under the Internal Revenue Code, taxpayers may rely only on opinions of counsel that meet specific requirements set forth in the regulations, including a requirement that such opinions contain extensive factual and legal discussion and analysis. Any tax advice that may be contained herein does not constitute an opinion that meets the requirements of the regulations. Any such tax advice therefore cannot be used, and was not intended or written to be used, for the purpose of avoiding any federal tax penalties that the Internal Revenue Service may attempt to impose.

The information contained herein is general in nature and is not intended as a substitute for specific legal advice nor is it to be relied upon for individual circumstances.