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FBAR Noncompliance & Taxpayer’s Options | FBAR Lawyer & Attorney

FBAR noncompliance is the worst nightmare for US taxpayers due to enormous FBAR penalties even for non-willful taxpayers. US Taxpayers who are not facing an IRS examination or a DOJ (US Department of Justice) lawsuit have three options with respect to their FBAR noncompliance: (1) do nothing with respect to correcting their prior FBAR noncompliance, close the accounts and hope that the IRS will never discover them; (2) do a quiet disclosure; and (3) come forward and voluntarily disclose their unfiled FBARs.

I already explored the highly-risky strategy of a quiet disclosure in another article. In this article, I will focus on option #1 – doing nothing about prior FBAR noncompliance. In the next article, I will discuss the option of Offshore Voluntary Disclosure as a way to deal with prior FBAR noncompliance.

This article does not constitute legal advice, but merely provides information for educational purposes.

Advantages of Doing Nothing With Respect to Prior FBAR Noncompliance

Doing nothing with respect to FBAR noncompliance is a position that some taxpayers prefer, because it requires no action, no immediate legal expenses and no immediate payment of IRS penalties.

In other words, if a taxpayer chooses to do nothing with respect to his late unfiled FBARs and his strategy is successful, he stands to gain in two aspects: (1) he spends no effort, time or money on correcting his past FBAR noncompliance; and (2) if (and this is big “if”) the IRS never finds out about his past FBAR noncompliance, he will not pay any penalties. This whole strategy is based on the hope that the IRS will not find out about their FBAR noncompliance.

Disadvantages of Doing Nothing With Respect to Prior FBAR Noncompliance Even If the Strategy Is Successful

From legal perspective, this strategy of doing nothing can be classified as very risky. If unsuccessful, a noncompliant taxpayer who chooses to do nothing stands to lose a lot more than he could ever gain if his strategy works.

Let’s analyze the disadvantages of doing nothing based on two scenarios: the strategy is successful and the strategy is unsuccessful.

Even if the strategy is ultimately successful and the IRS does not find out about FBAR noncompliance, there is still a heavy psychological price to pay for this success, because the taxpayer will not find out about the success of his strategy until the FBAR statute of limitations expires. In other words, for six long years, the taxpayer will not have any peace of mind and will constantly worry about his potential FBAR penalty exposure. If the taxpayer does not close his foreign accounts, the waiting period could be extended even further.

Moreover, if FBAR noncompliance is combined with income noncompliance and failure to file other US international information returns, the statute of limitations on the tax returns might be open for an indefinite period of time (especially if the IRS can assert a fraud claim against the noncompliant taxpayer).

I have personally seen the psychological effects of such pressure on some of my clients. It was simply destroying their lives. Eventually, they could not live like this and came to me to do offshore voluntary disclosure to resolve their prior FBAR noncompliance.

Disadvantages of Doing Nothing With Respect to Prior FBAR Noncompliance Where the Strategy Fails

If the success of this strategy exhorts such a heavy price, its failure may potentially result in disastrous consequences. Let’s explore the main two reasons why the strategy of doing nothing is so disfavored among international tax lawyers.

First, as described above, the current international tax enforcement structure severely undermines the entire basis for the strategy – i.e. hope that the IRS will not find out about FBAR noncompliance is simply too risky in the contemporary world dominated by FATCA, CRS and a widely-spread web of bilateral and multilateral automatic information exchange treaties. It is still possible that the IRS will not find out about a US person’s foreign accounts, but it is becoming less and less likely.

Second, since the strategy of doing nothing implies a taxpayer’s conscious choice not to comply with the FBAR requirements, it may turn a relatively simple and non-willful situation into a complex and willful one. In other words, under these circumstances, if the IRS is able to find out about prior FBAR noncompliance, the IRS may pursue willful and, in extreme circumstances, even criminal FBAR penalties.

Contact Sherayzen Law Office for Professional Help With Resolving FBAR Noncompliance Issues

If you never filed your required FBARs and other US tax forms, contact Sherayzen Law Office for professional help. Our legal team is headed by one of the most experienced international tax lawyers in this area – Mr. Eugene Sherayzen. He has helped hundreds of US taxpayers around the world to successfully resolve their prior FBAR noncompliance, and He can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2017 FBAR Deadline | FinCEN Form 114 FBAR Lawyer & Attorney

FinCEN recently confirmed the 2017 FBAR deadline and the automatic extension option.

2017 FBAR Deadline: FBAR Background

FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, is commonly known as FBAR.  US taxpayers should use this form to report their financial interest in or signatory authority over foreign financial accounts. Failure to timely file the FBAR may result in the imposition of draconian FBAR penalties.

2017 FBAR Deadline: Traditional FBAR Deadline

Prior to 2016 FBAR, the taxpayers had to file their FBARs for each relevant calendar year by June 30 of the following year. No filings extensions were allowed. The last FBAR that followed this deadline was 2015 FBAR (its due date was June 30, 2016).

2017 FBAR Deadline: Changes to FBAR Deadline Starting 2016 FBAR

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the “Act”) changed the FBAR deadline starting with 2016 FBAR.  Section 2006(b)(11) of the Act requires the FBARs to be filed by the due date of that year’s tax return (i.e. usually April 15), not June 30.

Furthermore, during the transition period, the IRS granted to US taxpayers an automatic extension of the FBAR filing deadline to October 15. The taxpayers do not need to make any specific requests in order for extension to be granted.

In other words, starting 2016 FBAR, the Act adjusted the FBAR due date to coincide with the federal income tax filing deadlines. Moreover, the new FBAR filing deadline will follow to the letter the federal income tax due date guidance. The federal income tax due date guidance states that, in situations where the tax return due date falls on a Saturday, Sunday, or legal holiday, the IRS must delay the due date until the next business day.

2017 FBAR Deadline

Based on the new law, the 2017 FBAR deadline will be April 17, 2018 (same as 2017 income tax return due date). If a taxpayer does not file his 2017 FBAR by April 17, 2018, then the IRS will automatically grant an extension until October 15, 2018. Failure to file 2017 FBAR by October 15, 2018, may result in the imposition of FBAR civil and criminal penalties.

International Tax Lawyer Lectures on US Tax Reporting of Italian Assets and Income

On February 2, 2017, Mr. Eugene Sherayzen, the founder and owner of Sherayzen Law Office (an international tax law firm headquartered in Minneapolis, Minnesota) gave a lecture at the Italian Cultural Center in downtown Minneapolis. The topic of the lecture was an introduction to US tax reporting of Italian assets and income for individual taxpayers. The lecture was well-attended by mostly native Italians (the room was filled to capacity) and caused a great amount of interest in the audience.

US Tax Reporting of Italian Assets

US Tax Reporting of Italian Assets Introduction

US Tax Reporting of Italian Assets and Income: Worldwide Income Reporting Requirement

The lecture commenced with the discussion of the worldwide income reporting requirement. After explaining the US tax residency requirement, Mr. Sherayzen focused on the importance of reporting Italian-source income in the United States for those Italians who are considered to be US tax residents (i.e. US citizens, US permanent residents, persons who satisfied the Substantial Presence Test and the US tax residents by choice). The lawyer explained that the Italian-source income must be disclosed by these Italians even if the income is already taxed in Italy and even if it is never brought into the United States.

US Tax Reporting of Italian Assets and Income: Foreign Rental Income Must Be Reported but Real Estate itself Is Reportable Only In Certain Cases

Then, Mr. Sherayzen discussed the subject of reporting by Italians of their foreign real estate and income derived from foreign real estate. The international tax lawyer emphasized that foreign rental income and foreign capital gains must be disclosed on the taxpayers’ US tax returns.

Then, Mr. Sherayzen clarified that, in situations where real estate is owned outright by individuals (i.e. not through any entity or any other complex arrangement), the ownership of the real estate itself is not generally reportable. However, if the Italian real estate is owned through an entity, then it will need to be disclosed as part of the entity’s financial statements prepared as part of Form 5471, 8865 or 8858. The lawyer again emphasized that, even in these circumstances, the income derived from Italian real estate is still reportable on the taxpayers’ US tax returns.

Minnesota International Tax Attorney

US Tax Reporting of Italian Assets and Income: FBAR and FATCA Form 8938

After discussing real estate as an exception from the general rule that foreign assets are likely to be reportable on the information returns in the United States, Mr. Sherayzen turned to the subject of reporting of foreign accounts with particular focus on FBAR and FATCA Form 8938. The discussion focused on the types of accounts that needed to disclosed, the reporting thresholds, and the penalties associated with the failure to file these forms. The international tax lawyer also discussed in more depth the history of FBAR.

This discussion caused a great number of questions related to FBAR, its thresholds and its relationship to income reporting. Fewer questions were asked with respect to Form 8938.

US Tax Reporting of Italian Assets and Income: PFICs

Despite the time limitations, Mr. Sherayzen briefly discussed Form 8621 as a hybrid form. The lawyer explained that a “hybrid form” meant that Form 8621 was used for both, income tax reporting and asset reporting, with respect to PFICs. Mr. Sherayzen explicated, in a very general manner, what assets qualified for PFIC status and what were the income tax consequences of PFICs. The Minneapolis international tax lawyer warned the audience that their Italian private pension plans and life insurance policies could contain PFICs.

International tax lawyer Madison

US Tax Reporting of Italian Assets and Income: Foreign Inheritance and Foreign Gifts

The lecture ended with a brief discussion of US tax reporting requirements concerning inheritance and gifts from Italian nationals and non-resident aliens (for US tax purposes). At that point, Mr. Sherayzen introduced Form 3520 and its threshold reporting requirements for foreign gifts and foreign inheritance. The lawyer also explained how Form 8938 could be applicable to a foreign inheritance.

After the lecture ended, Mr. Sherayzen continued to take questions in private for the next thirty minutes.