FBAR penalties reduced for six months.

• Author: Sullivan, Neil A.J.
• Position: Report of Foreign Bank and Financial Accounts

The IRS has provided a framework for voluntary disclosure requests containing offshore issues, such as previously undisclosed foreign financial accounts and entities (March 23, 2009, memo from Deputy Commissioner Linda Stiff to LMSB and SB/SE commissioners). The policy will remain in place for six months until September 23, 2009.

Criminal penalties, civil fraud penalties, or other penalties may not apply: Taxpayers making voluntary disclosures of offshore noncompliance can avoid the account balance FBAR nondisclosure penalty provisions and other provisions pertaining to various information returns, including Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation; Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts; Form 3526-A, Annual Information Return of Foreign Trust with a U.S. Owner; Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations; Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business; and Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships. Depending upon the facts in a given case, these penalties can cumulatively amount to far more than the total value of the offshore assets.

Consistent basis for resolving cases: To assure consistent treatment of these cases, the IRS has centralized the review and processing of voluntary disclosures with offshore aspects in one office in Philadelphia, which is authorized under the March 23 memo to resolve cases on the following basis:

* Assess all taxes and interest going back six years--the IRS will require the taxpayer to file or amend all returns, including information returns and Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly known as FBAR;

* Assess either an accuracy or a delinquency penalty on all years (no reasonable cause exception may be applied); and

* In lieu of all other penalties that may apply, including FBAR and information return penalties, assess a penalty equal to 20% of the amount in foreign bank accounts/ entities in the year with the highest aggregate account/asset value.

Reduced penalty for special circumstances: Under special circumstances the 20% penalty is reduced to 5%. These are:

* The...