A few days ago the IRS removed the Delinquent FBAR Submission Procedures (DFSP) page from its website. The DFSP allowed taxpayers with delinquent FBARs to come into compliance without penalty so long as there was no unreported income from the foreign financial account.
The removed DFSP page stated that:
The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
This has been replaced with the following statement regarding the filing of delinquent FBARs:
Filing an FBAR late or not at all is a violation and may subject you to penalties. If the IRS hasn’t contacted you about a late FBAR and you’re not under civil or criminal investigation by the IRS, you should file late FBARs as soon as possible to keep potential penalties to a minimum.
Will There Be an Automatic Penalty If I File Late?
FBARs are filed with FinCEN, but the IRS administers penalties. There’s no system that automatically assesses a fine when a late FBAR arrives. Penalties are almost always assessed by an examiner as part of an examination, often one that started as an income tax audit and expanded to foreign account issues.
No related changes currently appear to the IRM section regarding FBAR penalties. The IRM states that the examiner has discretion in whether or not to assess penalties. Factors to consider when applying examiner discretion may include, but are not limited to, the following:
- Whether compliance objectives would be achieved by issuance of a warning letter,
- Whether the person who committed the violation had been previously issued a warning letter or assessed an FBAR penalty,
- The nature of the violation and the amounts involved,
- The filer’s conduct contributing to the violation,
- Whether the filer cooperated during the examination,
- The balance in each account during the year, and
- The total amount of all penalties to be asserted for all violations.
Penalties for non-willful violations can be up to $10,000, adjusted for inflation. The statute of limitations on an FBAR is 6 years from the date of due date, including automatic extensions.
Will the Streamlined Procedures End?
It does appear that the IRS is narrowing the paths to voluntary compliance. After axing the OVDP, substantially altering the Delinquent International Information Return Submission Procedures, and now ending the DFSP, one would expect the IRS streamlined filing compliance procedures to end sooner rather than later. Hopefully, the IRS will provide some notice to taxpayers before ending these programs.