FBAR, Foreign Assets and the Streamlined Offshore Voluntary Disclosure Penalty

McMahon & Tivnan, PC is a boutique tax law firm in Boston that works with individuals, businesses, and estates facing tax disputes with state and federal governments. Our professional team has more than 100 years of combined experience with audits, litigation, appeals, and foreign transaction reporting. If you’re engaging in or trying to avoid a battle with the Internal Revenue Service (IRS) or a state tax agency, our experience ensures the best resolution possible.

What Is the Penalty For Failing to Report my Foreign Bank Account or Other Foreign Assets to the IRS?

To ensure that US taxpayers report all of their foreign income, the IRS requires reporting of certain foreign assets such as bank accounts and foreign corporations. Although there is no tax or fee for timely and accurately filing these required disclosure forms, such as the FBAR (FinCEN Form 114) or IRS Form 5471 or 8938, there can be significant penalties for failing to timely file accurate returns.

The penalty for failing to timely file an accurate FBAR (Foreign Bank Account Report, FinCEN Form 114) depends on the taxpayer’s culpability. If the failure is due to the taxpayer’s willful, intentional conduct the penalty is the larger of $100,000 or 50% of the high balance of the unreported accounts per violation. If the failure to file is due to the taxpayer’s negligence, the maximum penalty is $10,000 per violation. The penalty for numerous other foreign disclosure forms such as Forms 5471 and 8938 is $10,000 per violation.

How to Correct a Foreign Bank Account or Asset Reporting Error and What is the Offshore Voluntary Disclosure Program?

The IRS has created several programs and procedures to help taxpayers come into compliance with their foreign asset reporting requirements. Currently the IRS offers the Streamlined Offshore Voluntary Disclosure Program (Streamlined OVDP) as well as the Delinquent International Informational Return Procedure. The original Offshore Voluntary Disclosure Program (OVDP) was closed in September, 2018. The IRS may close these offerings at any time. Because the IRS can assess penalties for the late filing of a foreign asset disclosure form, merely filing required forms late can trigger penalties.

What Should I Expect From a FBAR or Foreign Income Investigation?

For the past several years the IRS has been receiving information from foreign banks about US account holders pursuant to Foreign Account and Tax Compliance Act (“FATCA”) enacted in 2011. The IRS has been using that information to match against tax returns to find likely compliance problems. We have seen numerous taxpayer audits focused on foreign bank account and income reporting in situations where the IRS had already obtained documents and information about a taxpayer’s foreign bank account before the audit began. Because the IRS’s international enforcement effort has been ongoing for several years, IRS often suspects a taxpayer who has not correctly reported their foreign bank account and/or income may have intentionally failed to report, which can lead to significant penalties.

Where Can I Get Help if I Am Facing an IRS FBAR or Foreign Income Investigation?

At McMahon & Tivnan, we have represented clients facing foreign bank account, foreign income, and foreign corporate compliance and enforcement issues for years. For the best results, our attorneys should be involved as early in the process as possible. Contact us as soon as you receive notification that the audit is coming. Let us bring our many years of expertise with the IRS to the table. The IRS has been through foreign examination process many times and you should have attorneys that have been as well.

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