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IRS Issues FBAR Fact Sheet | FBAR FATCA Tax Lawyer & Attorney

On April 4, 2019, the IRS issued the FBAR Fact Sheet in order to acquaint US taxpayers with this highly important reporting requirement for foreign accounts held by US persons. Let’s analyze the new fact sheet in more detail.

FBAR Fact Sheet: Organizational Structure of the Fact Sheet

The IRS FBAR Fact Sheet can be divided into seven parts: (1) introduction to FBAR and the need to report foreign accounts to the IRS; (2) identification of who needs to file FBARs; (3) explanation of how to file FBARs (including special cases such as joint accounts and the determination of highest balances); (4) discussion of Form 8938 and FBAR; (5) amended and late FBARs; (6) description of FBAR recordkeeping requirements; and (7) more IRS resources concerning FBAR. These parts are not clearly delineated in the Fact Sheet; rather, they are summaries of various information that this brochure contains.

FBAR Fact Sheet: Introduction to FBAR

The IRS FBAR Fact Sheet commences with the warning to US taxpayers that they are required to report their foreign bank and financial accounts even if they do not produce any interest income. April 15 is identified as the critical deadline for these taxpayers. Later, the IRS also states that there is an extension available for FBARs. Again, the IRS did not do a very good job in organizing the Fact Sheet.

FBAR Fact Sheet: Who Needs to File FBARs?

Then, the IRS Fact Sheet finally introduces FBAR and states that it was created by the 1970 Bank Secrecy Act; there is no discussion of the significance of this legal history. Then, the IRS focuses on the persons who may have to file FBARs and introduces the concept of “US Person”. It defines US person as a “citizen or resident of the United States or any domestic legal entity such as a partnership, corporation, limited liability company, estate or trust.”

There is a hidden trap in this IRS definition. “Resident of the United States” does not only include US permanent residents (as most non-lawyers would read it), but also US tax residents. I encourage the readers to read this article with respect to the definition of “resident” for FBAR purposes.

The IRS also defines “United States” for FBAR purposes. The readers can read this article published by Sherayzen Law Office for a more detailed analysis of this concept.

FBAR Fact Sheet: How to File FBARs

This part of the FBAR Fact Sheet focuses on the details concerning how to file FBAR electronically. The IRS cautions taxpayers that FBAR should not be filed with their federal tax returns.

Then, the IRS discusses in more detail certain special cases such as joint accounts and US retirement accounts. The IRS finishes this part of the FBAR fact sheet with the discussion on the determination of the highest value of a foreign account.

FBAR Fact Sheet: Form 8938 & FBAR

In this part of the Fact Sheet, the IRS introduces taxpayers to an existence of another requirement concerning foreign accounts, FATCA Form 8938. The IRS urges the readers to search the IRS website with respect to this form and how it compares to FBAR.

FBAR Fact Sheet: Amended and Late FBARs

The next part of the Fact Sheet focuses on amended and late FBARs. First, the IRS discusses how to amend an FBAR. Then, the IRS states that, as soon as a taxpayer learns that he did not file the required FBARs, he needs to e-file them. At that point, the IRS casually discusses that there is space available on the form to explain the reason for late filing. Finally, the IRS describes the severe FBAR criminal penalties, stating the following: “the IRS will not penalize those who properly report a foreign financial account on a late filed FBAR, and the IRS finds they have reasonable cause for late filing.”

Sherayzen Law Office believes that the IRS has not done a good job in this part of the Fact Sheet. It has completely failed to emphasize the importance of seeking a legal advice prior to filing a late FBAR. A taxpayer may get the wrong impression that he should file a late FBAR as soon as possible before exploring the options on how to do it in a way that protects him from excessive FBAR penalties.

Moreover, the IRS also failed to emphasize the importance of offshore voluntary disclosure with respect to late FBARs. Besides a casual mention of an “IRS compliance program”, there is nothing about the various available voluntary disclosure options for US taxpayers who are filing late FBARs. The IRS does not refer at all to the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

FBAR Fact Sheet: Recordkeeping Requirements

In the next part of the Fact Sheet, the IRS discusses how many years the FBAR filers need to keep the supporting documentation and copies of FBARs. Curiously, the IRS states that the filers should keep the documents for five years from the due date of FBAR, but the FBAR Statute of Limitations is six years.

Sherayzen Law Office does not believe that the IRS advice is correct here. We urge FBAR filers to keep their FBAR records and copies of the filed FBARs for six to ten years.

FBAR Fact Sheet: IRS Resources

The IRS concludes its FBAR Fact Sheet with the discussion of additional available resources to US taxpayers, including FBAR hotline and Publication 4261.

Sherayzen Law Office’s View of the FBAR Fact Sheet

We believe that the FBAR Fact Sheet can serve only as a general introduction to FBAR, but it is not sufficient to provide US taxpayers with sufficient guidance on how to properly deal with late FBARs. On the contrary, a US taxpayer may actually put himself in a worse legal position if he only relies on the Fact Sheet to file his late FBARs.

If you should have filed FBARs but you have not done so, contact Sherayzen Law Office for professional help. As the IRS states in its FBAR Fact Sheet, the FBAR penalties are extremely severe. Hence, it is important to approach any FBAR violations with an extreme caution and retain Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world to deal with late FBARs, and We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

International Tax Lawyer & Attorney | April 2019 IRS Compliance Campaigns

On April 16, 2019, the IRS Large Business and International division (LB&I) announced the approval of three additional compliance campaigns. Let’s discuss in more detail these April 2019 IRS compliance campaigns.

April 2019 IRS Compliance Campaigns: Background Information

In the mid-2010s, after extensive planning, the IRS decided to move LB&I toward issue-based examinations and a compliance campaign process. The idea was to let LB&I itself decide which compliance issues presented the most risk and required a response in the form of one or multiple treatment streams to achieve compliance objectives. The IRS came to the conclusion that this was the most efficient approach that assured the best use of IRS knowledge and appropriately deployed the right resources to address specific noncompliance issues.

The first thirteen campaigns were announced by LB&I on January 13, 2017. Then, the IRS added eleven campaigns on November 3, 2017, five campaigns on March 13, 2018, six campaigns on May 21, 2018, five campaigns on July 2, 2018, five campaigns on September 10, 2018 and five campaigns on October 30, 2018. With the additional three April 2019 IRS compliance campaigns, there are fifty-three total IRS compliance campaigns outstanding as of the time of this writing.

The IRS has created each campaign after careful strategic planning, re-deployment of resources, creation of new training and tools as well as careful taxpayer population selection through metrics and feedback. The IRS has also built a supporting infrastructure inside LB&I for each specific campaign.

Three New April 2019 IRS Compliance Campaigns

Here are the new three new campaigns: Captive Services Provider Campaign, Offshore Private Banking Campaign and Loose-Filed Forms 5471. Each of these five campaigns was identified through LB&I data analysis and suggestions from IRS employees.

April 2019 IRS Compliance Campaigns: Captive Services Provider Campaign

The section 482 regulations and the OECD Transfer Pricing Guidelines provide rules for determining arm’s length pricing for transactions between controlled entities, including transactions in which a foreign captive subsidiary performs services exclusively for the parent or other members of the multinational group. The arm’s length price is determined by taking into consideration data available on companies performing functions, employing assets, and assuming risks that are comparable to those of the captive subsidiary.

Excessive pricing for these services would inappropriately shift taxable income to these foreign entities and erode the U.S. tax base. The goal of this campaign is to ensure that U.S. multinational companies are paying their captive service providers no more than arm’s length prices. The treatment streams for this campaign are issue-based examinations and soft letters.

April 2019 IRS Compliance Campaigns: Offshore Private Banking Campaign

US tax residents are subject to tax on worldwide income from all sources, including income generated outside of the United States. It is not illegal or improper for US taxpayers to own offshore structures, accounts or assets, but they must comply with income tax and information reporting requirements associated with these foreign activities.

Through FATCA, bilateral information exchange treaties, the Swiss Bank Program, offshore voluntary disclosures and audits, the IRS has accumulated a great pile of records that identify taxpayers with transactions and/or accounts at offshore private banks. This campaign addresses tax noncompliance and the information reporting associated with these offshore accounts. The IRS will initially address tax noncompliance through the examination and soft letter treatment streams. Additional treatment streams may be developed based on feedback received throughout the campaign.

April 2019 IRS Compliance Campaigns: Loose-Filed Forms 5471

Form 5471, Information Return of US Persons With Respect to Certain Foreign Corporations, must be attached to an income tax return (or a partnership or exempt organization return, if applicable) and filed by the return’s due date including extensions. Some taxpayers are incorrectly filing Forms 5471 by sending the form to the IRS without attaching it to a tax return.

If a Form 5471 is required to be filed and was not attached to an original return, an amended return with the Form 5471 attached should be filed. The goal of this campaign is to improve compliance with the requirement to attach a Form 5471 to an income tax, partnership or exempt organization return.

Contact Sherayzen Law Office for Professional Tax Help

If you have been contacted by the IRS as part of any of its campaigns, you should contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world with their US tax compliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

FBAR Financial Interest Definition | FBAR International Tax Lawyer & Attorney | FinCEN Form 114

In this article, I discuss one of the most important aspects of FBAR compliance – the FBAR financial interest definition.

FBAR Financial Interest: Legal Relevance and Context

FBAR is the acronym for the Report of Foreign Bank and Financial Accounts, FinCEN Form 114. A US person who has a financial interest in foreign bank and financial accounts must file FBARs to report these accounts as long as their aggregate value exceeds the FBAR filing threshold. The key issue here is the definition of “financial interest” for FBAR purposes.

FBAR Financial Interest: Classification of Financial Interest

As I just stated, the FBAR financial interest definition describes a situation when a US person has a “financial interest” in foreign account. It turns out that there are six possible situations when a US person may have a financial interest in a foreign account.

These situations can be divided into three categories: direct ownership, indirect ownership and constructive ownership. Let’s explore them in more detail.

FBAR Financial Interest: Direct Ownership

A US person has a financial interest in a foreign account if he is the owner of record or holder of legal title for this account. It does not matter whether he maintains the account for his own benefit or for the benefit of another person (US or foreign). As long as he is the owner of the account, he has a financial interest in the account and must file an FBAR to report it if the account’s highest value (together with all other foreign accounts of this person) exceeds $10,000.

FBAR Financial Interest: Indirect Ownership

There are four different scenarios which may result in having a reportable indirect FBAR financial interest in a foreign account:

1. Indirect Ownership Through a Corporation

A US person has a financial interest in a foreign account if the owner of record of holder of legal title is a corporation in which a US person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock; or (ii) more than 50 percent of the voting power of all shares of stock.

This means that, if a US corporation owns a foreign company which has a foreign account, then this US corporation has a financial interest in this account through its direct ownership of the foreign company. In other words, the US corporation will need to file FBAR for the foreign company’s foreign bank and financial accounts.

One of the most frequent sources of FBAR noncompliance, however, is with respect to indirect ownership of the foreign account by the owners of the US corporation. For example, if a Nevada corporation owns 100% of a French corporation and a US owner owns 51% of the US corporation, then, the US owner must disclose on his FBAR his financial interest in the French corporation’s foreign accounts. This financial interest is acquired through indirect 51% ownership of the French corporation.

2. Indirect Ownership Through a Partnership

This scenario is very similar to that of corporations. A US person has a financial interest in a foreign account if the owner of record or holder of legal title is a partnership in which the US person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (distributive share of partnership income taking into account any special allocation agreement); or (ii) an interest in more than 50 percent of the partnership capital.

3. Indirect Ownership Through a Trust

This is a more complex category which includes two scenarios. First, a US person has a financial interest in a foreign account if the owner of record or holder of legal title is a trust and this US person is the trust grantor who has an ownership interest in the trust under the 26 U.S.C. §§ 671-679.

Second, a US person has a financial interest in a foreign account if the owner of record or holder of legal title is a trust in which the US person has a greater than fifty percent (50%) beneficial interest in the assets or income of the trust for the calendar year. This second scenario is a true FBAR trap for US taxpayers, because while grantors may anticipate their FBAR requirements, beneficiaries are usually completely oblivious to this requirement.

This category of FBAR financial interest definition is even more complicated by the fact that it requires a very nuanced understanding of US property law and FBAR regulations. For example, how many taxpayers can answer this question: if a US person has a remainder interest in a trust that has a foreign financial account, should he disclose this account on his FBAR?

4. Indirect Ownership Through Any Other Entity

This a “catch-all” category of indirect FBAR financial interest definition. If a situation does not fall within any of the aforementioned categories, a US person still has a financial interest in a foreign account if the owner of record or holder of legal title is any other entity in which the US person owns directly or indirectly more than 50% of the voting power, more than 50% of the total value of equity interest or assets, or more than 50% of interest in profits.

FBAR Financial Interest: Constructive Ownership

This is a very dangerous category of FBAR financial interest definition, because, in the event of an unfavorable determination by the IRS, it may have highly unfavorable consequences, including the imposition of FBAR willful penalties and even FBAR criminal penalties. A US person has a financial interest in a foreign account if the owner of record or holder of legal title is a person who acts on behalf of the US person with respect to the account. Various classes of persons fall under this description: agents, nominees and even attorneys.

This category of FBAR financial interest definition targets situations where a US person is trying to hold his money under the name of a third party. It is not easy, however, to determine whether the foreign person is holding this money on behalf of the US person.

The key consideration here is the degree of control that the US person exercises over the account. If the agent can only access the account in accordance with the instructions from the US person, if there is an understanding that the agent holds the account on behalf of the US person and if the agent does not independently distribute funds for his own needs, then the IRS is likely to find that the US person has a financial interest in the account for FBAR purposes.

On the other hand, if the account owner uses the funds for his own purposes and makes gifts to third parties, the situation becomes increasingly unclear. In this case, one has to retain an international tax attorney to analyze all facts and circumstances, including the origin of funds.

Contact Sherayzen Law Office for FBAR Help, Including the Determination of FBAR Financial Interest in a Foreign Account

FBAR is a very dangerous form. FBAR noncompliance penalties are truly draconian. They range from FBAR criminal penalties (of up to ten years in prison) to civil FBAR willful penalties (with 50% of the account or $100,000 (adjusted for inflation) whichever is higher) and even civil FBAR non-willful penalties of up to $10,000 (adjusted for inflation) per account per year. FBAR’s unusual Statute of Limitation of six years also means that the IRS has an unusually long period of time to assess these penalties.

This is why, if you have foreign bank and financial accounts, you should contact Sherayzen Law Office for professional help. We are a highly-experienced international tax law firm that specialized in US international tax compliance and offshore voluntary disclosures (including for prior FBAR noncompliance). We have helped hundreds of US taxpayers around the world, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2018 FBAR Currency Conversion Rates | FBAR Tax Lawyer & Attorney

2018 FBAR and 2018 Form 8938 instructions both require that 2018 FBAR Currency Conversion Rates be used to report the required highest balances of foreign financial assets on these forms. In the case of 2018 Form 8938, the 2018 FBAR Currency Conversion Rates is the default choice, not an exclusive one.

The U.S. Department of Treasury  already published the 2018 FBAR Currency Conversion Rates online (they are called “Treasury’s Financial Management Service rates” or the “FMS rates”).

Since the 2018 FBAR Currency Conversion Rates are very important to US taxpayers, international tax lawyers and international tax accountants, Sherayzen Law Office provides the table below listing the official 2018 FBAR Currency Conversion Rates (note that the readers still need to refer to the official website for any updates).

 

Country – Currency

Foreign Currency to $1.00

AFGHANISTAN – AFGHANI

74.576

ALBANIA – LEK

107.05

ALGERIA – DINAR

117.898

ANGOLA – KWANZA

310.0000

ANTIGUA – BARBUDA – E. CARIBBEAN DOLLAR

2.7000

ARGENTINA – PESO

37.642

ARMENIA – DRAM

485.0000

AUSTRALIA – DOLLAR

1.4160

AUSTRIA – EURO

0.8720

AZERBAIJAN – NEW MANAT

1.7000

BAHAMAS – DOLLAR

1.0000

BAHRAIN – DINAR

0.3770

BANGLADESH – TAKA

84.0000

BARBADOS – DOLLAR

2.0200

BELARUS – NEW RUBLE

2.1600

BELGIUM – EURO

0.8720

BELIZE – DOLLAR

2.0000

BENIN – CFA FRANC

568.6500

BERMUDA – DOLLAR

1.0000

BOLIVIA – BOLIVIANO

6.8500

BOSNIA – MARKA

1.7060

BOTSWANA – PULA

10.6610

BRAZIL – REAL

3.8800

BRUNEI – DOLLAR

1.3610

BULGARIA – LEV

1.7070

BURKINA FASO – CFA FRANC

568.6500

BURUNDI – FRANC

1790.0000

CAMBODIA (KHMER) – RIEL

4103.0000

CAMEROON – CFA FRANC

603.8700

CANADA – DOLLAR

1.3620

CAPE VERDE – ESCUDO

94.8800

CAYMAN ISLANDS – DOLLAR

0.8200

CENTRAL AFRICAN REPUBLIC – CFA FRANC

603.8700

CHAD – CFA FRANC

603.8700

CHILE – PESO

693.0800

CHINA – RENMINBI

6.8760

COLOMBIA – PESO

3245.8000

COMOROS – FRANC

428.1400

CONGO, DEM. REP – CONGOLESE FRANC

1630.0000

COSTA RICA – COLON

603.5000

COTE D’IVOIRE – CFA FRANC

568.6500

CROATIA – KUNA

6.3100

CUBA – PESO

1.0000

CYPRUS – EURO

0.8720

CZECH REPUBLIC – KORUNA

21.9410

DENMARK – KRONE

6.5170

DJIBOUTI – FRANC

177.0000

DOMINICAN REPUBLIC – PESO

49.9400

ECUADOR – DOLARES

1.0000

EGYPT – POUND

17.8900

EL SALVADOR – DOLARES

1.0000

EQUATORIAL GUINEA – CFA FRANC

603.8700

ERITREA – NAKFA

15.0000

ESTONIA – EURO

0.8720

ETHIOPIA – BIRR

28.0400

EURO ZONE – EURO

0.8720

FIJI – DOLLAR

2.1080

FINLAND – EURO

0.8720

FRANCE – EURO

0.8720

GABON – CFA FRANC

603.8700

GAMBIA – DALASI

50.0000

GEORGIA – LARI

2.6700

GERMANY – EURO

0.8720

GHANA – CEDI

4.8250

GREECE – EURO

0.8720

GRENADA – EAST CARIBBEAN DOLLAR

2.7000

GUATEMALA – QUENTZAL

7.7150

GUINEA – FRANC

9076.0000

GUINEA BISSAU – CFA FRANC

568.6500

GUYANA – DOLLAR

215.0000

HAITI – GOURDE

77.1180

HONDURAS – LEMPIRA

25.0000

HONG KONG – DOLLAR

7.8320

HUNGARY – FORINT

280.1700

ICELAND – KRONA

116.1100

INDIA – RUPEE

69.8000

INDONESIA – RUPIAH

14440.0000

IRAN – RIAL

42000.0000

IRAQ – DINAR

1138.0000

IRELAND – EURO

0.8720

ISRAEL – SHEKEL

3.7490

ITALY – EURO

0.8720

JAMAICA – DOLLAR

126.0000

JAPAN – YEN

109.8500

JERUSALEM – SHEKEL

3.7490

JORDAN – DINAR

0.7080

KAZAKHSTAN – TENGE

375.1500

KENYA – SHILLING

101.8000

KOREA – WON

1114.4900

KOSOVO – EURO

0.8720

KUWAIT – DINAR

0.3030

KYRGYZSTAN – SOM

69.8000

LAOS – KIP

8535.0000

LATVIA – EURO

0.8720

LEBANON – POUND

1500.0000

LESOTHO – SOUTH AFRICAN RAND

14.3500

LIBERIA – DOLLAR

156.7100

LIBYA – DINAR

1.3860

LITHUANIA – EURO

0.8720

LUXEMBOURG – EURO

0.8720

MACAO – MOP

no listing

MACEDONIA FYROM – DENAR

53.5000

MADAGASCAR – ARIARY

3470.2000

MALAWI – KWACHA

733.0000

MALAYSIA – RINGGIT

4.1300

MALI – CFA FRANC

568.6500

MALTA – EURO

0.8720

MARSHALL ISLANDS – DOLLAR

1.0000

MARTINIQUE – EURO

0.8720

MAURITANIA – OUGUIYA

36.0000

MAURITIUS – RUPEE

34.1500

MEXICO – PESO

19.6540

MICRONESIA – DOLLAR

1.0000

MOLDOVA – LEU

16.9930

MONGOLIA – TUGRIK

2642.9200

MONTENEGRO – EURO

0.8720

MOROCCO – DIRHAM

9.5300

MOZAMBIQUE – METICAL

61.5300

MYANMAR – KYAT

1535.0000

NAMIBIA – DOLLAR

14.3500

NEPAL – RUPEE

111.6000

NETHERLANDS – EURO

0.8720

NETHERLANDS ANTILLES – GUILDER

1.7800

NEW ZEALAND – DOLLAR

1.4900

NICARAGUA – CORDOBA

32.3000

NIGER – CFA FRANC

568.6500

NIGERIA – NAIRA

361.0000

NORWAY – KRONE

8.6800

OMAN – RIAL

0.3850

PAKISTAN – RUPEE

138.6000

PALAU – DOLLAR

1.0000

PANAMA – BALBOA

1.0000

PAPUA NEW GUINEA – KINA

3.2840

PARAGUAY – GUARANI

5956.0000

PERU – NUEVO SOL

3.3750

PHILIPPINES – PESO

52.4900

POLAND – ZLOTY

3.7530

PORTUGAL – EURO

0.8720

QATAR – RIYAL

3.6400

ROMANIA – NEW LEU

4.0690

RUSSIA – RUBLE

69.6800

RWANDA – FRANC

890.0000

SAO TOME & PRINCIPE – NEW DOBRAS

21.5350

SAO TOME & PRINCIPE – DOBRAS

20941.0080

SAUDI ARABIA – RIYAL

3.7500

SENEGAL – CFA FRANC

568.6500

SERBIA – DINAR

103.3900

SEYCHELLES – RUPEE

13.5500

SIERRA LEONE – LEONE

8620.0000

SINGAPORE – DOLLAR

1.3610

SLOVAK REPUBLIC – EURO

0.8720

SLOVENIA – EURO

0.8720

SOLOMON ISLANDS – DOLLAR

7.7520

SOMALI – SHILLING

575.0000

SOUTH AFRICA – RAND

14.3500

SOUTH SUDANESE – POUND

153.7000

SPAIN – EURO

0.8720

SRI LANKA – RUPEE

182.6000

ST LUCIA – EC DOLLAR

2.7000

SUDAN – SUDANESE POUND

47.0000

SURINAME – GUILDER

7.5200

SWAZILAND – LILANGENI

14.3500

SWEDEN – KRONA

8.9380

SWITZERLAND – FRANC

0.9840

SYRIA – POUND

515.0000

TAIWAN – DOLLAR

30.5880

TAJIKISTAN – SOMONI

9.3500

TANZANIA – SHILLING

2295.0000

THAILAND – BAHT

32.3500

TIMOR – LESTE DILI

1.0000

TOGO – CFA FRANC

568.6500

TONGA – PA’ANGA

2.1730

TRINIDAD & TOBAGO – DOLLAR

6.7700

TUNISIA – DINAR

3.0090

TURKEY – LIRA

5.2830

TURKMENISTAN – NEW MANAT

3.4910

UGANDA – SHILLING

3705.0000

UKRAINE – HRYVNIA

27.7000

UNITED ARAB EMIRATES – DIRHAM

3.6730

UNITED KINGDOM – POUND STERLING

0.7810

URUGUAY – PESO

32.3200

UZBEKISTAN – SOM

8310.0000

VANUATU – VATU

111.6900

VENEZUELA – BOLIVAR – SOBERANO

563.9800

VENEZUELA – BOLIVAR – FUERTE

248832.0000

VIETNAM – DONG

23190.0000

WESTERN SAMOA – TALA

2.5350

YEMEN – RIAL

480.0000

ZAMBIA – NEW KWACHA

11.9000

ZIMBABWE – DOLLAR

1.0000

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!

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