Determining 'Reasonable Cause' for Nonwillful FBAR Violations

Practice, CCH Incorporated, April-May 2015

6 Pages Posted: 15 Aug 2015

See all articles by Charles P. Rettig

Charles P. Rettig

Hochman, Salkin, Rettig, Toscher & Perez, P.C.

Date Written: May 1, 2015

Abstract

The ability of a U.S. taxpayer to maintain an undisclosed, “secret” foreign financial account is fast becoming nonexistent. For years, the IRS has been pursuing — with mixed success — the disclosure of information regarding undeclared interests of U.S. taxpayers (or those who ought to be U.S. taxpayers) in foreign financial accounts. Numerous taxpayers with previously undisclosed interests in foreign financial accounts and assets have been seeking participation in the current IRS offshore voluntary disclosure program (the OVDP, which began in 2012 and was modified in 2014), modeled after similar programs in 2009 and 2011. Since the launch of the first OVDP in 2009, more than 48,000 taxpayers have come into compliance voluntarily, paying about $6.5 billion in taxes, interest and penalties.

For violations involving the willful failure to report the existence of an interest in a foreign account, the maximum amount of the penalty that may be assessed under Code Sec. 5321(a)(5)(C) is the greater of $100,000 or 50 percent of the balance in an unreported foreign account, per year, for up to six tax years. For violations involving the non-willful failure to report the existence of an interest in a foreign account, the maximum amount of the penalty that may be assessed under Code Sec. 5321(a)(5)(B) shall not exceed $10,000, per year, for up to six tax years.

However, no penalty shall be imposed if such non-willful violation was due to reasonable cause and the amount of the transaction or the balance in the account at the time of the transaction was properly reported.

Taxpayers having undisclosed interests in foreign financial accounts must consult competent tax professionals before deciding to the appropriate method of coming into compliance. If discovered before any voluntary disclosure submission, the results can be devastating. Waiting is not a viable option. Those who think too long may be sorely surprised at the high level of ultimate cooperation of their institution with the U.S. government.

Keywords: FBAR, FBAR enalty, willful, non-willful, nonwillful, IRS, Internal Revenue Service, IRS examination, tax examination, tax dispute

Suggested Citation

Rettig, Charles P., Determining 'Reasonable Cause' for Nonwillful FBAR Violations (May 1, 2015). Practice, CCH Incorporated, April-May 2015, Available at SSRN: https://ssrn.com/abstract=2643806

Charles P. Rettig (Contact Author)

Hochman, Salkin, Rettig, Toscher & Perez, P.C. ( email )

9150 Wilshire Blvd., Suite 300
Beverly Hills, CA 90212
United States

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