New IRS Guidance on FBAR Penalties
The Internal Revenue Service issued a memorandum last month that set maximum amounts on the penalties for failure to file a foreign bank account report (“FBAR”). In addition they issued new guidance on examination procedures of determining willful and non-willful violations. The IRS is striving to ensure effectiveness and consistency in the FBAR compliance program and administration of penalties.
Facts and circumstances, including the conduct of the taxpayer and the aggregate balance of the unreported foreign financial accounts, shall now be considered by the IRS examiner to establish penalty amounts. In promoting fairness through the examination process, all cases will consist of an examiner recommending a penalty and consulting a division coordinator, and other specialists, for guidance on the penalty amount. They will also determine whether the violation is deemed to be wilful or if the violation could warrant a criminal referral. The examiner’s workpapers must support determination of the amount and document the discussions and approval.
While an examiner can recommend a penalty of any amount relevant to the facts and circumstances of a wilful violation of not filing an FBAR, the total penalty amount cannot exceed 100% of the highest aggregate balance of the unreported foreign financial accounts in a year or years under examination.
In no event may the total penalty related to non-wilful violations exceed 50% of the highest aggregate balance of the unreported foreign accounts under examination. In addition, in most cases, the total penalty amount per tax year may not exceed $10,000, regardless of the quantity of unreported foreign accounts. Previously, the non-willful penalty could be high as $10,000 per foreign account per year.
Of course, the best way to ensure you do not become a part of an IRS examination over FBAR violations is to timely file your FBAR FinCEN Form 114. You must file this form if the aggregate balance in all of your foreign financial accounts exceeds $10,000. The FBAR is due on the 30th of June with no extensions. Contact us for assistance in filing your 2014 or past due prior year FBARs.