Delinquent FBAR Submission Procedures

Learn More About Delinquent FBAR Submission Procedures, Including the IRS's Streamlined Filing Compliance Procedures and Other Options.

For those who qualify, the Streamlined Domestic Offshore Procedures are an attractive way for U.S. taxpayers who did not willfully fail to file FBARs to become compliant in their filing obligations for the first time while limiting their penalty risk to a single 5% penalty on the highest balance of their accounts on December 31 of the last 6 years. For those already under audit for a delinquent FBAR, you may be relying on the discretion of the IRS (article here) or forced into litigation (see presentation here). In some cases, simply submitting the delinquent FBARs with explanation may be appropriate. In others, a traditional voluntary disclosure may be the best option. You should consult with an attorney before choosing the most appropriate route.

When you want to make sure that a streamlined disclosure is appropriate for you and, if you are eligible for those procedures, the streamlined certification, FBARs, and returns are competently prepared and submitted, having a sophisticated and experienced tax attorney is critical. As a former IRS attorney, Daniel W. Layton had responsibility for approving or disapproving the IRS’s proposed assessments of willful and non-willful penalties for failure to file FBARs. As a result, he understands how the IRS views failure to report offshore accounts and the decision whether to impose substantial penalties. As former federal prosecutor, Mr. Layton also has the experience to advise clients about how the government perceives the difference between willful and non-willful, or criminal and purely civil conduct.

Submission

Although some cases are more complicated, generally, taxpayers who qualify for this relief must file correct amended returns going back 3 years reporting all domestic and foreign income and reporting their foreign assets on related schedules to the returns (especially Form 8938) and must file the last 6 delinquent FBARs (reports of foreign bank accounts) with FinCen reporting their interests in offshore and foreign bank accounts. The “miscellaneous” offshore penalty, additional tax on the amended returns, and interest on the theretofore unpaid tax must be paid in full with the submission. The central document which must be provided with the submission is a the Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures. As discussed further below, a critical part of this form is the factual narrative.

Eligibility

The program has several of eligibility and participation requirements and guidance which can be found on the IRS website here and here. Procedures for non-resident taxpayers can be found here. However, individuals should be cautious about proceeding without the advice of an experienced tax professional when filing foreign reports for the first time and, especially, when submitting the streamlined certification form which requires attesting to detailed facts surrounding the foreign accounts, failure to file FBARs, and failure to pay taxes. As stated in the form itself:

You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.

Non-Willfulness and the Factual Narrative

In addition to requiring a sufficiently detailed narrative, the IRS requires the taxpayer(s) certify to the “non-willfulness” of the failure to report the foreign sourced income and the offshore accounts. However, those submitting this form should be aware that the IRS will not simply take taxpayers’ word that they were not “willful” or that their detailed narrative is the whole story. Rather, the IRS is carefully scrutinizing the streamlined submissions and other information in their possession for facts not consistent with non-willful or inadvertent failure to report foreign income and accounts. Most taxpayers and tax professionals do not have experience evaluating what “willful” conduct means under the law and how their conduct, even if inadvertent, may look from the IRS’s perspective. Furthermore, few outside the IRS can understand what IRS reviewers want to see.

If you need competent advice and legal assistance on a matter involving disclosure of foreign accounts, you can contact tax attorney Daniel W. Layton, Esq., for a consultation at (949) 301-9829.