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Can you amend FBARs?

by: Anthony Parent
  2017-08-08

 

 

 

Yes. It is possible to amend FBAR forms.

 

But should you? Or should you get an expert to file it for you?

 

The FBAR is the most insane form ever created.

 

Just because you have no tax due, don't mean the IRS can't assess a willful FBAR penalty against you. The FBAR is actually not a tax form. It is so complicated, the federal government put the IRS in charge of administering it because no other federal agency employees wanted to deal with it. 

 

Oh, and FBAR penalties for even innocent mistakes are nothing short of insane.

 

Complexity: The FBAR is known by no less than four different names.

This may seem like a small issue, but it illustrates a larger problem. The IRS can't even settle on one standardized name for the FBAR. It is also known as:

  • FinCEN Form 114
  • Report of Foreign Bank Accounts
  • TD F 90.22-1

We are left with an uncomfortable question. If the IRS can't even have a consistent name for a form, how can anyone expect them to apply the law consistently or fairly?

 

Amending an FBAR infers a higher standard of knowledge — this can be used against you.

When you file an FBAR the IRS assumes you have a heightened knowledge. They will punish you for any technical mistakes…as opposed to someone who never filed an FBAR. 

 

In order to assess the willful FBAR penalty (up to 50% of the account value), the IRS must find a reason that you were "willful" in your actions.

 

Unfortunately, we've seen the IRS argue things like, "You knew enough to amend an FBAR, but you didn't know enough to read the instructions correctly?" Then, they go one step further and say, "Since you knew about the FBAR, you must know about the Internal Revenue Manual, the Bank Secrecy Act of 1970 (as amended) and the recent FBAR litigation on what is required in federal district court."

 

What happens if you don't amend and you needed to?

In the worst case scenario, willfully and knowingly filing a false FBAR means that the IRS can assess a civil penalty of $100,000 or 50% of the account  value (whichever is greater) in addition to $10,000 or 5 years for criminal violations. However, it isn't exactly clear whether failure to amend is covered by this violation — it's better to be safe and amend any mistakes on the FBAR.

 

You may need to enter an offshore disclosure program

Just because a foreign asset isn't taxed in the country is which it is held does not mean they are tax-free or reporting free for US tax purposes. If you have a missing FBAR AND unreported income, usually some sort of voluntary disclosure program is needed to mitigate the risk of being hit with the willfull FBAR penalties.

 

Again, amending an FBAR will infer you have a higher standard of knowledge and the IRS could use this against you if you are ever audited. That might not be a risk you are comfortable with.

 

When to amend FBARs

Filing your FBARs by the deadline is important to avoid some of the hefty penalties that may be administered by the IRS. If you've forgotten any of the following, you may have issues:

 

  • Missed accounts: Forgotten offshore accounts
  • Incorrect balances: Make sure you've calculated your FBAR balances correctly
  • Signatory authority: If you have signatory authority on an offshore account — even if you have no financial interest — you must declare this when you file FBARs.
  • Joint accounts: Joint accounts require filing even if another individual with ownership of the account has already submitted an FBAR. In addition, you need to make sure that you don't retain ownership of a joint account after selling it.
  • Life insurance/pension: Don't forget that foreign life insurance and/or pension plans are both reportable on the FBAR.

 

How to amend FBARs

If you do find yourself completely comfortable dealing with the risk of amending an FBAR yourself, you need to check the "Amended" box. In addition, you should use the original BSA identifier you were given when you filed your original FBAR.

Fun fact: the IRS's "employee manual" (put together in 2008) has the wrong instructions on how to amend FBARs. 

 

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If you need any assistance with unfiled or misfiled FBARs, contact us. We can help. Call us at 888-727-8796 or email [email protected] We can also help you understand if you should get into a disclosure program, and if so, which is right for your circumstances. Learn more about our services and fees here .

Categories

FBAR (Form 114) & FBAR Penalties
FBAR penalty appeals
Offshore Tax & Foreign Banking issues

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Home » IRS Says FBAR Penalty Is Not a…

IRS Says FBAR Penalty Is Not a Fine Under Eighth Amendment

September 11th, 2018

Posted By
Joseph R. Viola

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U.S. Constitution

Willful FBAR penalties can quickly add up to hundreds of thousands of dollars. But are those penalties an unconstitutional fine under the Eighth Amendment? In a recent filing in the United States Court of Federal Claims, the government said the amount didn’t matter, constitutionally speaking, because an FBAR penalty is not a fine at all.

When the Internal Revenue Service (IRS) imposed willful FBAR violation penalties on Alice Kimble, she filed a lawsuit in federal court. She said the fine was inappropriate because the failure to file FinCEN 115 forms was non-willful. Even if the court found her actions were willful, she and her tax attorney argued the penalty violated the Eighth Amendment of the U.S. Constitution — the ban on excessive fines and penalties.

IRS Says Willful FBAR Penalties Can Be Shown 3 Ways

Every year, U.S. taxpayers with over $10,000 in financial accounts overseas are required to file a Foreign Bank Account Report (FBAR) under the Bank Secrecy Act. FBAR penalties for accidental, inadvertent, or otherwise non-willful failure to file are limited. They can’t exceed $10,000 per account, per year. But where the IRS decides the violation was willful, it can impose up to $100,000 or 50% of the highest aggregate balance of all unreported accounts.

The question of whether FBAR violations are willful or non-willful has been the basis for extensive tax litigation. Over the years, the courts have identified 3 ways a person can willfully fail to file FBARs:

  • Voluntarily or intentionally not filing
  • Willful blindness to the legal duty to file
  • Reckless disregard of the duty to file

If a person knew, or reasonably should have known, about the FBAR reporting requirement, the IRS is allowed to impose willful FBAR penalties, even if the taxpayer unintentionally missed the deadline or failed to file.

Willfulness Means More Than Intent

In Kimble v United States (No. 1:17-cv-00421), Alice Kimble owned two foreign bank accounts, one with HSBC and another with UBS. According to Kimble, the UBS account was funded by her father’s income as a lawyer. Shortly before his death he made her a joint owner on the account so that she “inherited” the money when he died. She admitted to not filing an FBAR in 2007, but said the violation was not willful.

But the IRS said Kimble was intentionally keeping the UBS account a secret from everyone, including the U.S. government. She maintained the account as a numbered account, withheld all correspondence from the bank, and avoided investing in U.S. securities. From the IRS’s perspective, that demonstrated her willfulness in not filing FBARs and not checking the box disclosing foreign assets on her tax returns.

IRS Says FBAR Penalty is Not a Fine

In response to the IRS, Kimble raised a different defense. She said that even if her conduct was willful, the penalty the IRS imposed was an unconstitutional excessive fine. The Eighth Amendment says “excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” The question Kimble and the IRS put in front of the court was whether willful FBAR penalties count as fines, and if they are excessive.

The IRS argued that the the Eighth Amendment did not prevent the IRS from imposing willful FBAR penalties. The government’s attorneys argued the Eighth Amendment shouldn’t apply at all, because the FBAR penalties weren’t fines in the constitutional sense.

Federal courts have distinguished between criminal penalties and civil fines imposed for remedial purposes. Criminal fines and forfeitures have been regulated under the Eighth Amendment. But that constitutional provision doesn’t apply to civil fines. However, even in its argument, the IRS cited cases where previous federal courts had “assumed” the penalties were a fine before weighing whether they were excessive under the circumstances. While the IRS drew connections between FBAR penalties and other civil remedial fines, it could not say another court had found FBAR penalties were not controlled by the Eighth Amendment.

It remains to be seen whether the federal court will rule on the IRS’s position that an FBAR penalty is not a fine, or simply rule on the Eighth Amendment issue of excessive fines. Either way, the case demonstrates the importance of hiring a skilled tax attorney to defend you if you are facing willful FBAR penalties. Without a competent defense, you could face thousands of dollars of unnecessary fines and penalties.

Attorney Joseph R. Viola  is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you are are facing willful FBAR penalties,  contact Joe Viola  to schedule a free consultation.

Categories:  FBAR , Tax / IRS Penalties

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