FBARs Due October 16
We are almost a month away from the October 16th extension deadline. While this is mostly acknowledged as the extended due date for personal tax returns, it is also the deadline for FBARs. If you have already filed your personal tax return, but have yet to file your FBAR, you still have time for timely filing (FinCEN allows filers an automatic extension to October).
As discussed earlier in the year, gamblers (and all those required to file FBARs) received a positive verdict in the Bittner case. But, with all good things, comes the IRS. After the ruling, the IRS quickly updated the FBAR examination procedures in the Internal Revenue Manual. And these updates, which are already in place, are not advantageous for taxpayers. What changed?
More Subjectivity to Assess Penalties
If a taxpayer is found to have non-willfully failed to file an FBAR, the penalty is now determined by IRS agents on a case-by-case basis. Previously, the penalty was assessed using a set of predetermined IRS metrics, which ranged from $500 to $10,000. Under these metrics, many taxpayers were often assessed moderate fines for non-willful violations.
After the Bittner verdict, the IRS made the penalty process more subjective. My guess? Moving forward, agents may tend to be less forgiving than the previous metrics and we could see more maximum penalties for non-willful violations than before. Maximum penalties are equal to $10,000, or 50% of the aggregate account balances in question, whichever is less.
Penalties for Improper Recordkeeping
The IRS has made it clear that it can assess violations for both failing to file an FBAR and failing to maintain proper records. The IRS will again defer to the discretion of IRS agents to determine the nature of the penalty.
To maintain proper records, taxpayers must retain records that document the:
Name of the account
Name and address of the foreign institution that maintains the account
Type of account
Maximum account value
These records must be kept for 5 years.
Everything mentioned above applies to non-willful violations only. The penalty for willful violations has remain unchanged. The penalty remains a maximum of $100,000, or 50% of the aggregate account balances in question, whichever is less.
This is not the last time I will add a helpful reminder for FBARs. If you have authority over a foreign bank account or unregulated gambling account*, please check with your tax professional to see if you meet the filing requirement. And don’t forget about Form 8938!
The IRS continues to push back on FBAR-related violations. While it is an additional form that needs to be addressed, it is a good idea to spend the effort to ensure compliance.
*There is no definitive guidance surrounding unregulated gambling accounts. I recommend filing an FBAR for these accounts as a precautionary measure.