FBAR or Foreign Bank and Financial Accounts report is required to be filed by a person residing in the USA, a domestic partnership, a domestic corporation, or even a domestic estate should they meet the following conditions:
- The sum value of all the foreign financial account exceeds $10,000 at any time during the calendar year.
- The person has a financial interest in or signature authority one or more accounts in a foreign country
Often individuals receive letters from the IRS asking them to schedule an appointment to examine their state of compliance with the requirements for the same.
Even though the FBAR examination is not the same as income tax examination, your client stands to lose a lot of money in the form of penalties for failure to comply with the required conditions.
There are numerous cases being fought in Federal courts by taxpayers trying to avoid FBAR willfulness civil penalty. To truly understand how to avoid being charged for the same, it is important to understand what does the term “willfulness behavior” legally imply. The following set of conditions are what define willfulness behavior on a taxpayer’s part:
- A taxpayer violates the law “voluntarily rather than accidentally”
- They are “willfully blind” to the legal duty to report
- Engage in conduct that is in “reckless disregard” of the legal duty of reporting to the government
How to resolve such a case
Often clients get served with a notice asking them to appear for an FBAR compliance examination. The smartest way to prevent this from further escalation is to try and resolve the case with the federal IRS agent during the civil examination itself. Following are some ways to resolve an FBAR examination without turning it into a court case:
- Producing documents supporting your client’s compliance with non-willful behavior
- Presenting signed affidavits under penalty of perjury
- Factually distinguishing your current case from the adverse publicized FBAR cases
- Educating the IRS agent on why your client’s behavior does not qualify as “willful behavior”
You can find helpful factors in the Internal Revenue Manual. Another thing to keep in mind is that the IRS is a document-driven agency and thus, your client needs something more than just self-proclaimed affidavits to make a strong case.
In addition to all of this, it is essential to manage your client’s expectations about administrative appeals. Appeals might not always prove to be enough to resolve a conflict, especially with the stringent FBAR laws currently in effect.
These cases often take time and hence it is important to develop resilience and patience. The spirit should be of perseverance and constant faith in your own cause. With the number of additional FBAR cases being litigated on a daily basis in federal courts, the chances of taxpayers winning their appeals keep going higher. The only thing that truly matters is that neither you nor your client gives up too soon.