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FBAR Penalty Procedures

by: Anthony Parent   2013-07-16

 

What are the FBAR penalty procedures administrative processes?

An IRS examiner will determine, based on facts and circumstances (and IRM guidelines) what action is appropriate in the FBAR case. If FBAR penalty procedures are found to be in order, the examiner then submits the case file to counsel specializing in FBAR penalty matters, which reviews and signs off on the imposition of the penalty.

 

The examiner issues Letter 3709, the FBAR 30-Day Letter and Form 13449, FBAR Agreement to Assessment and Collection. Form 13449 is in the form of an “Agreement.” It also is the examiner’s report of his findings and the relevant FBAR violations, which forms the basis for FBAR penalty procedures. It’s brief (two pages) and contains only “Definition of Penalty Statutes,” listing five statutes:

 

  1. Willful failure to meet TDF 90-22.1 filing or record keeping requirements

  2. Failure to meet TDF 90-22.1 filing or record keeping requirements (as distinguished from willful failure to report)

  3. Negligent failure to report

  4. Negligent failure to meet record keeping requirements

  5. “Pattern of negligent activity” (per 31 USC § 5321(a)(6)(B), imposed only on a “financial institution or non-financial trade or business”)

 

In addition to the expected account holder information and signature fields, the second page has room for six entries, each one consisting of calendar year, foreign bank or institution, proposed penalty (as enumerated above), value of account, account number, and amount of penalty.

 

This is the entirety of the form, containing no information about potential appeals, merely a line for an individual to sign their agreement to assessment and collection of the penalties being assessed. The FBAR penalty procedures for appeals are provided in Letter 3709. If the individual pays the assessment within 30 days, the matter is closed.

 

Also within those 30 days, the individual has the right to file an appeal with IRS appeals. This appeal takes the form of a written protest, and is submitted to an officer who  “will follow procedures outlined in 'Foreign Bank and Financial Accounts Requirements Guidance for Appeal Officers' available on the Appeals web site.”

 

It is noted in the IRM that per FBAR penalty procedures: “Post-assessment FBAR penalty cases are priority cases and must be worked expeditiously,” and that such cases must be completed and approved within 60 days of assignment. The appeals process then appears to be limited to post-assessment hearing or hearings, after which the assessment is sustained, partially sustained, or not sustained within the 60-day period.

 

Should the penalty be sustained, Appeals is now out of the picture. The case is closed and is sent to FMS for collections. The IRS may only collect on the debt using the methods stated in 31 CFR 5.4, namely:

 

  • Seizing any amounts owed to the individual by the US government such as tax refunds, benefits, government salary, etc. This is not especially relevant in most instances (or sufficient to cover the amount owed).

  • Private collections

  • Credit bureau reporting

  • Administrative wage garnishment

  • Litigation

 

If the IRS is interested in collecting huge FBAR penalties and making sure the public stands up and takes notice, litigation is the most obvious avenue. The recent decision in US v. Carl R. Zwerner, case # 1:13-cv-22082 (SD Florida, June 11, 2013) is likely one of many to come under the strange circumstances of IRS administration of Title 31 issues.

 

Without a significant change in the FBAR landscape --- perhaps legislation that brings FBAR penalty procedures within the protections of IRS collections statutes--expect a cavalcade of litigation to recover large FBAR penalties, doubling as revenue sources and press releases.

 

If you are concerned about misfiled or unfiled FBARs, contact us to set up a complimentary, confidential consultation.

 

For answers on common FBAR issues, click on the box below.

 

 


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