The FBAR Filing Dilemma

December 19, 2011 by  Filed under: Taxes 

Many tax payers are always faced by a dilemma when it comes to filing their first Report of Foreign Bank and Financial Accounts (FBAR). For individuals in the IRS program of Offshore Voluntary Disclosure Initiative (OVDI), the IRS requires them to file the amended FBAR. Tax payers, with foreign bank and financial accounts, are required to file their returns by June 30 every year, as long as the foreign accounts hold at least $10,000.

However, those not in the OVDI program can still make voluntary disclosure under the IRS traditional rules. They would then be required to file past FBARs that are due to the IRS and then commit to file subsequent ones for as long as they are required.

Failure to disclose foreign accounts, on tax returns, or failure to have previously filed FBARs can lead to big penalties or even serving timein prison. The IRS discourages the aspect of “quiet disclosure” when starting to file FBARs. Some of the “quiet disclosure” aspects that some taxpayers embark on include:

· Filing of FBARs prospectively without addressing the past.

· Filing three years of previously due FBARs on one envelope each in a bid to avoid attention.

· Filing six years of previously due FBARs on an envelope each; or

· Filing three, six, or even eight years of FBARs accompanied by a lettered explanation to the IRS stating that the taxpayer did not previously know the filing requirements, and as a result should be spared penalties.

Some individuals might have accurate total income on their tax returns, but fail to disclose their past foreign accounts. Others might be uneasy with filing past due FBARs under any conditions. All in all, FBAR filing should be done even when there are no taxes to be paid for the reported foreign income, for example, due to foreign tax credits.

The decision to start filing FBARs is sensible, regardless of whether one is attempting to make late FBAR filings to correct the past, or not. Penalties imposed for past FBAR filing failures can be disputed through detailed explanations to the IRS for failure to do so, or by making the first FBAR filing accompanied by an explanation citing unawareness of filing requirements.

Being fully tax complaint on all incomes, including foreign incomes, does not exempt one from filing FBARs. Individuals that have past due taxes, owing to failure on their part to disclose foreign incomes, and file FBARs, face a tough choice on whether to start the FBAR filings or not, because of the penalties they are likely to face. Getting proper advice from relevant quarters is, therefore, recommended.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. http://www.limonwhitaker.com / Tel:888.321.6188

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