Is Your Client the Subject of an FBAR Examination?
- Steven L. Walker PLC
- Jan 31, 2019
- 1 min read
Has a client received a letter from the IRS asking to schedule an appointment to examine the client’s compliance with the requirement to file FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR)? Although an FBAR examination is not an income tax examination, the client may be liable for penalties for failure to comply with 31 U.S.C. Section 5314.
Practitioners should know a few key things about these types of cases. First and foremost, an FBAR battle is being waged in federal courts across the country where taxpayers have been seeking to avoid the imposition of the maximum FBAR willfulness civil penalty. Faced with an adverse result during an IRS civil examination or administrative appeal, taxpayers have turned to litigating the civil penalties in federal court in the hope of a better result.
The Department of Justice has succeeded in several cases where courts have upheld the maximum FBAR willfulness penalty and rejected the taxpayer's argument to apply a "reasonable cause" standard and the lesser FBAR nonwillful penalty. This has galvanized the IRS and the revenue agents working the cases. The FBAR willfulness penalty is the greater of $100,000 or 50% of the balance in the unreported foreign account at the time of the violation, and the maximum penalty for a nonwillful violation is $10,000 (31 U.S.C. §5314).
