Tag Archives: FBAR

cross posted from Be careful what you “fix for”! A Holiday Gift: What to do about the unfiled #FBAR
 

 
UPDATED WEDNESDAY JANUARY 4, 2017

Part 6 – Getting help with “fixing your compliance problem”:
“The smaller the step taken, the bigger the result”
 
Some tax professionals:

– believe that compliance problems should presumptively be solved ONLY through prescribed IRS procedures including: “Streamlined (domestic or offshore)”,”OVDP”
“Delinquent information returns” and; “Delinquent FBAR submission procedures”; AND THEREFORE

– rightly or wrongly (and it depends on the facts) find it difficult to deal with the Title 31 FBAR problem without considering one or more Title 26 tax problems.

In many cases they will frame the issue as:

Should you use OVDP (the answer is almost always NO) or should you use Streamlined (the answer is usually maybe). But, to use either OVDP or Streamlined is to NOT solve the Title 31 FBAR problem without compounding the number of problems (by introducing Title 26 tax issues). Are you eligible to use the “Delinquent FBAR submission procedures?”

The threshold consideration is whether all income associated with the “foreign accounts”, that should have been reported on the tax returns was properly reported.

OVDP and Streamlined ALWAYS assume more than one problem …

Since OVDP and Streamlined deny the possibility of solving the Title 31 FBAR problem on its own, some advisers escalate one simple Title 31 FBAR problem into several problems.

OVDP, Streamlined the “Delinquent FBAR Filing Procedures” are NOT not found in either the Internal Revenue Code (Title 26) or the Bank Secrecy At (Title 31). Therefore, they are NOT the law and are NOT legally required. They may or may not be advisable courses of action.
(This is where your adviser can assist you in making a rational decision.)

Obeying the law (“doing the right thing”) requires two things.

Thou shalt:

1. File FBARs (Title 31)

2. File your tax returns (Title 26)

What could be wrong with fixing “compliance problems” by “obeying the law”?

Isn’t to “obey the law”, to “do the right thing”?

There are people who fix their “compliance problems” by simply “filing their tax returns and/or amended tax returns” without using OVDP or Streamlined. In do doing, they are simply “obeying the law”. You will find many “internet warnings” against filing tax returns outside of the OVDP or Streamlined (“quiet disclosures“). Are these warnings justified?

Is it really “the wrong thing” to try to “do the right thing”
(obey the law)?

The answer depends on the facts. I will address the question of “quiet disclosures” in a separate post.

“The total weight of problems is equal to the square of the number of problems!”

You will compound your problems by allowing your problems to escalate.
That’s how the two people described above, who started with one simple problem, found themselves in the messes they are in today.

Conclusion: consider whether you can deal with minor/unintentional FBAR violations as a “stand alone single problem”.
There may be no need to escalate that one single problem into a multi-dimensional full blown tax problem!

Remember: In most cases, “the smaller the step taken, the bigger the result for you!”

John Richardson
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reposted from the citizenshipsolutions blog

Prologue: Circa 1948 – George Orwell anticipates the arrival of Mr. FBAR

In his classic book "1984", George Orwell anticipated the "reporting requirements" that exist today. pic.twitter.com/zD1CjrbsDN

— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) August 24, 2016

‘By the way, old boy,’ he said. ‘I hear that little beggar of mine let fly at you with his catapult yesterday. I gave him a good dressing-down for it. In fact I told him I’d take the catapult away if he does it again.

‘I think he was a little upset at not going to the execution,’ said Winston.

‘ Ah, well — what I mean to say, shows the right spirit, doesn’t it?
Mischievous little beggars they are, both of them, but talk about keenness! All they think about is the Spies, and the war, of course.
D’you know what that little girl of mine did last Saturday, when her troop was on a hike out Berkhamsted way? She got two other girls to go with her, slipped off from the hike, and spent the whole afternoon following a strange man. They kept on his tail for two hours, right through the woods, and then, when they got into Amersham, handed him over to the patrols.’

‘What did they do that for?’ said Winston, somewhat taken aback. Parsons went on triumphantly:

‘My kid made sure he was some kind of enemy agent — might have been dropped by parachute, for instance. But here’s the point, old boy. What do you think put her on to him in the first place? She spotted he was wearing a funny kind of shoes — said she’d never seen anyone wearing shoes like that before. So the chances were he was a foreigner.
Pretty smart for a nipper of seven, eh?’

‘What happened to the man?’ said Winston.

‘Ah, that I couldn’t say, of course. But I wouldn’t be altogether surprised if-‘ Parsons made the motion of aiming a rifle, and clicked his tongue for the explosion.

Chapter 5 of George Orwell’s 1984

Writing in 1948, George Orwell (in his book 1984) identified the need to identify and punish all things “foreign” as being important for domestic security.

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As has been noted in various news articles (e.g. this one posted by Tom Alciere), the IRS is bragging about FinCEN receiving nearly 1.2 million FBARs last year:

“Taxpayers here and abroad need to take their offshore tax and filing obligations seriously,” IRS Commissioner John Koskinen said. “Improving offshore compliance has been a top priority of the IRS for several years, and we are seeing very positive results.” … In 2015, FinCen received a record high 1,163,229 FBARs, up more than 8 percent from the prior year. In fact, FBAR filings have grown on average by 17 percent per year during the last five years, according to FinCen data.

The growth just before that five year window was even more impressive: in 2011, the number of FBAR filers jumped to 618,134, according to an article by Brian Knowlton article in the New York Times, up by 124% from 276,386 in 2009, an annualised growth rate of nearly 50%. (For comparison, during the five period from 2008–2012, the IRS added 100,000 new Foreign Earned Income Exclusion users — with average incomes of about US$30k, meaning they don’t owe any U.S. tax unless Koskinen figures out some clever new way to extract money from them by imposing obscene fines on them for committing ordinary personal finance or inventing new forms of “income” out of thin air.)

Massive growth is exactly what Ms. Lucy Stensland Laederich of FAWCO told FinCEN to expect nearly six years ago, in response to FinCEN’s laughably low estimates in their Notice of Proposed Rulemaking in February 2010 (75 FR 8844) of 400,000 FBAR filers:

First, however, you note in VI. that the estimated number of affected filing individuals and entities is 400,000. In view of State Department estimates of over 5 million private sector Americans abroad and the large number of Americans and other U.S. persons residing within the United States and maintaining bank accounts abroad, I suspect that your number is vastly underestimated.

Oddly enough, as recently as 2008, FinCEN estimated that they should be getting 13 million FBARs. But three years later, James H. Freis, Jr. of FinCEN responded to FAWCO by covering his ears, ignoring the massive growth in filer numbers right in front of his eyes, and pretending that the 400,000 forms he actually received meant that his agency was getting 100% compliance already (76 FR 10244):

FinCEN received one comment on the estimated number of filers. The commenter believed that the number of filers should be higher. The commenter stated that estimates of Americans living abroad may be as high as 5 million, and that approximately 2 million of those Americans might be affected by the FBAR rules. The commenter did not provide a verifiable source or methodology for arriving at those estimates. As stated above, the rule contained in this document addresses the FBAR rules that have been in existence since 1972. FinCEN’s estimate of the number of affected filing individuals and entities (400,000) is based on the number of FBARs annually filed in recent previous years.

See how much your comments matter to the U.S. government?

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