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How to Qualify for FBAR Amnesty and Handle FBAR Penalties

February 24, 2012 | Comments: 0 | Views: 358

Getting FBAR amnesty is a tricky process, and I hope to shed some light on this topic in this article. If you are wondering whether you can get FBAR amnesty, let me tell you that it is possible. Many have done it successfully, however most times it involves reduction of fines rather than complete elimination.

There are some cases in which all fines and FBAR penalties are forgiven, but for the most part they are significantly reduced. Another big advantage of an FBAR amnesty is that many times you can avoid jail time for criminal FBAR penalties. This incentive alone is huge and the number one reason for compliance under FBAR amnesty.

Which Agency Provides FBAR Amnesty Notifications?

From time to time, the FinCen - Financial Crimes Enforcement Network issues an amnesty, or relief guidelines for those delinquent in their FBAR report filings. One should not rely on these as there is no guarantee that the FinCen will release such guidelines at any point. The issuance of FBAR amnesty is a random act to say the least.

Whenever such guidance has been released in the past, it focuses on whether the person or entity in question of FBAR compliance violation is a majority stakeholder or controlled person in the foreign bank account in question. This is a critical piece of information to pay attention to. If you own less than 50% of the foreign financial account, and do not fit the definition of a "controlled person", there may be more leniency toward you. This will likely remain consistent for all FBAR amnesty guidelines in the future as well.

When an FBAR amnesty program is announced, recipients of the communication are given a deadline by which to file their foreign bank account reports. When filing, the person or entity in question for non compliance with FBAR guidelines can appeal the FBAR fines and penalties to get them reduced. The same goes for jail time if criminal penalties apply.

Notable FBAR Amnesty Initiatives

When FBAR amnesty programs have been announced in the past by the IRS, these have been titled as the Offshore Voluntary Compliance Initiative, also commonly known as the OVCI. This initiative is meant to encourage those not compliance with FBAR reporting to come forward and disclose unreported activities, in particular offshore income as this is what the IRS is mainly concerned about.

When such amnesty provisions are put in place, individuals and entities that are eligible under the program are told that they would not face criminal prosecution, and that the civil FBAR penalties would be significantly reduced (but not all the time as often violators are subject to penalties as well as interest on unpaid taxes).

These initiatives are usually successful as several non compliant individuals and entities come forward at this time and disclose their foreign financial activities. Those that do not get to participate in the OVCI for whatever reason are given another opportunity (again, not always), through "last chance letters". These letters specifically go to individuals and entities that the IRS suspects need to comply with FBAR reporting guidelines.

How does the IRS know about who must comply? There are various methods. For example, if the IRS gets wind that you hold a foreign debit card, or that you are a participant in any offshore financial activity, they may send you the last chance letter. The formal name of this program has been called the "Last Chance Compliance Initiative", or the LCCI. Again, the program is meant to encourage FBAR reporting compliance, and to reduce the fines and penalties that those who are not in compliance have to pay.

But as you can imagine, the FBAR amnesty immunity granted to those in the LCCI is much less than those in the OVCI which is really mean for voluntary participation rather than compelled participation. Another key point that I want you to understand is that the two FBAR amnesty programs are not meant to release you from all your obligations, rather to minimize the fines and penalties you may face as a result of not complying with the law.

Timeline of Participation in FBAR Amnesty Programs

Typically you have 30 days to respond to the IRS after receiving the letter under the LCCI, or after announcement of the OVCI, the voluntary program. After getting in touch with the IRS, you normally have up to 150 days (over 4 months) to gather, prepare and send the IRS all the relevant forms and statements to disclose your foreign financial activities.

Another important detail to note is that if you receive an LCCI from the IRS and choose not to respond to it or act in any way, the IRS historically has placed those in similar situations under full examination. Therefore, it behooves you to respond and fully comply through disclosure if you feel that you have any exposure to FBAR fines and penalties.

Catch 20 - Civil Vs. Criminal FBAR Penalties

Here is where things get really tricky. On one hand the IRS entices you by volunteering to disclose foreign financial activity by promising lighter penalties, but think about this for a minute. By coming forward and admitting that you have not been complying with FBAR requirements, you are essentially admitting guilt aren't you? So how are you to ensure that even if the IRS forgives your civil FBAR penalties, or significantly reduces them, that you will not have to face criminal penalties?

Here is what makes things more muddy. When the IRS sends you a letter under the LCCI, it already suspects that you must be complying with FBAR reporting requirements, so if you come forward after receiving the last chance letter under the LCCI FBAR amnesty initiative, what does this tell the IRS? There is no guarantee at all (at least that is written) that you will be forgiven criminal penalties even if your civil penalties are significantly reduced.

So what are you to do? The best course of action is to contact the IRS examination agent that is assigned to you and get as much clarity and assurance as possible around the repercussions of you voluntarily coming forward to disclose your foreign bank account activities. The IRS understands that the more they provide support and leniency in form of assurance, the more compliance they will get from individuals and entities who may want to comply but are afraid of the criminal implications. Building a good rapport while fully cooperating with IRS officials is your best bet in this case.

Finally, I'd also like to clarify that under amnesty, you are not exempt from FBAR penalties that result from tax evasion through not reporting income deliberately. It is one thing not to comply because of unawareness, but it is another to deliberately not report all your earnings. Penalties related to these instances are governed under the internal revenue code section 6662 as well as 6663.

So get you FBAR form ready for full compliance and avoid further trouble. It pays to pay your taxes, it pays to comply with the law. But for whatever reasons in the event you have not been able to comply historically, look out for FBAR amnesty programs that allow significant leniency for those willing to voluntarily disclose their foreign financial activities.

Curt Matsen, CPA is the author of the FBAR Form Guide, a comprehensive website that discuss the FBAR reporting requirements, avoiding FBAR penalties and qualifying for amnesty programs. Read more at: http://www.file-fbar.com

Source: EzineArticles
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