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Tax News
Moving from FS-2011-13 to Streamlined FBAR Compliance
September 04, 2012
Administrative Actions
So the IRS has moved one step closer to providing US taxpayers living abroad with somewhat of an easier and clearer compliance procedure for filing delinquent FBARs.  The possible recipient of this boon is a client with a story that goes like this. I lived in the US, I moved out, I paid taxes in the country I lived in, I haven’t been back in the US for many, many years. One day I wake up and I read in the news that there is a form called FBAR and the US Government is going after people that have not filed those forms, and possibly criminally prosecuting them.  A concerned citizen would say here, oh my.., now what do I do? I didn’t mean to not file this FBAR form or deceive the US Government. Until recently this hypothetical person did not have too many viable options.  He could have just kept his eyes closed and did what he or she has been doing, which probably no advisor should recommend, participate in the OVDI and basically be treated like a criminal, or try to claim “reasonable cause” exception under FS-2011-13.  This latter alternative assumed that the taxpayer was “clean” and could qualify for “reasonable cause” under existing law, which to some degree assumed that the taxpayer relied upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account.  The taxpayer in our example might have had an issue with all of these.  First, he wants to be compliant so he does not want to just sit around after he became aware of the FBAR filing obligation. Second, he may be totally overwhelmed by the requirements of the OVDI, the references to criminal liability, the penalties, the filing/compliance cost for attorney fees and so on.  Third, he might have had an issue with “reasonable cause” because he simply was not aware of the FBAR requirement, did not use a competent advisor, or did not want to be subject to an arbitrary IRS determination whether his cause for not filing was “reasonable.”  Well, now this hypothetical taxpayer has the option of filing through this new streamlined filing compliance procedure.  While this procedure is not perfect (apparently, tax practitioners are already complaining about it), I think that it is one step in the right direction and people that are in the category of “oh, I had no clue and I have been out of the US for so long” should consider it in earnest, subject of course, to their counsel advice.  Obviously, any of the IRS programs, including this one, pose certain degree of uncertainty considering that there are a few key determinations that are exclusively within the hands of the IRS.  This streamlined procedure has the added risk factor of not absolving the taxpayer from criminal liability, should the taxpayer not qualify for the procedure.  In other words, taxpayers that might have any doubts that they did something “wrong” may be better off looking towards the OVDI instead of the streamlined process discussed here.  Also, the procedure may not necessarily be an "out of reasonable cause" because the IRS statement specifically indicates that the Service may require a proof of "reasonable cause" for certain "high risk" returns.  The procedure could be found on the IRS’ website, here.
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Tags: FBAR, FS-2011-13, streamlined fbar, streamlined fbar compliance, TD F 90-22.1