No FBAR Penalty is the result that every taxpayer wishes to achieve. Indeed, having no FBAR penalty is a realistic objective, but only in certain situations. One of such situations is currently offered by the IRS through Delinquent FBAR Submission Procedures.
History of the IRS Procedures Regarding No FBAR Penalty Option
There is a relatively long history behind the option that taxpayers with delinquent FBARs would be charged no FBAR penalty. It comes from the traditional link between income tax noncompliance and the imposition of an FBAR penalty. Prior to 2009 OVDP, the No FBAR Penalty option was unofficial, but very much part of the IRS tradition in situations where a taxpayer would not have any additional U.S. tax liability as a result of his voluntary disclosure of foreign accounts.
The rules for the 2009 IRS Offshore Voluntary Disclosure Programs (“2009 OVDP”) finally officially recognized the No FBAR Penalty option in the answer to Question #9. The FAQ #9 also for the first time properly stated the legal philosophy behind the No FBAR Penalty option: “The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters.” Hence, if a taxpayer “reported and paid tax on all taxable income but did not file FBARs, do not use the voluntary disclosure process.” Rather, the taxpayer was urged to file the FBARs directly with the explanation of why the FBARs were filed late.
Both, the 2011 IRS Offshore Voluntary Disclosure Initiative (“2011 OVDI) and 2012 Offshore Voluntary Disclosure Program (“2012 OVDI) again reinforced the No FBAR Penalty with FAQ #17: “The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.”
On June 18, 2014, with the creation of 2014 Offshore Voluntary Disclosure Program (“2014 OVDP”), the IRS removed the 2014 OVDP FAQ #17 and replaced it the modern official No FBAR Penalty option called Delinquent FBAR Submission Procedures.
No FBAR Penalty Option under the Delinquent FBAR Submission Procedures
Under the Delinquent FBAR Submission Procedures, the IRS promises not to impose FBAR penalties for the failure to file the delinquent FBARs if three requirements are met: (1) the taxpayer properly reported on his U.S. tax returns (and paid all tax on) the income from the foreign financial accounts reported on the delinquent FBARs; (2) the IRS has not contacted the taxpayer previously regarding an income tax examination (civil or criminal) for the years for which the delinquent FBARs are submitted; and (3) the IRS has not previously requested from the taxpayer the FBARs for the years for the years for which the delinquent FBARs are submitted.
If all three requirements are met, the taxpayers can pursue Delinquent FBAR Submission Procedures by filings the delinquent FBARs with FinCEN directly. A statement explaining why the FBARs are filed late must be provided to the IRS.
Contact Sherayzen Law Office to Explore Your No FBAR Penalty Options
Delinquent FBAR Submission Procedures is probably one of the most popular No FBAR penalty options, but it is a limited one because it is not always possible to comply with all three of the formal requirements of the Procedures. Thankfully, these Procedures are not the only No FBAR Penalty Option offered by the IRS.
This is why, if you have undisclosed foreign accounts, you should contact the experienced international tax law firm of Sherayzen Law Office. We will thoroughly explore your case, analyze your No FBAR penalty and voluntary disclosure options, choose the disclosure route that best balances your risks and rewards, prepare all of the required legal documents and tax forms, and defend your case against the IRS. We have helped hundreds of U.S. taxpayers around the world and we can help You!