Wednesday, June 24, 2009

Get in Line Brother #12 - Rumors of FBAR Rule Relaxation

Given the crush of those trying to meet the June 30 FBAR filing deadline, I report here some rumors about Taxpayer friendly relief or at least help, albeit rather small.

1. I have heard that the IRS issued today some new FBAR guidance addressing a number of issues, but I have not been able to get a copy or even a good summary yet. I will post it and make comments when I get it. [Note: the Guidance appeared as a revision of the May 6, 2009 FAQs and may be viewed here.]

2. I have also heard that the IRS might apply some type of timely mailing, timely filing rule. I have not been able to confirm that rumor, so it could be just wishful, hopeful thinking. Still, in the administration of these provisions, I would think prudential administration would not force a penalty for an FBAR that was timely mailed, provided it got to the Detroit Service Center (or even the IRS for that matter) some reasonable time after June 30. In other words, while the IRS may not have the ability to create administratively a timely mailing, timely filing rule, it could achieve the practical equivalent by making prudent judgment calls not to administer the penalty to FBARs that might otherwise qualify if there were such a rule.

Note: For item 2, the Internal Revenue Code section deeming timely mailing to be timely filing, does not apply because the FBAR requirement is not in the Internal Revenue Code and thus is not subject to the timely mailing, timely filing rule.

Second Note to Readers: I had to change this blog because I had a significant error about having heard that the IRS would extend the filing date from June 30, 2009 to July 2, 2009. I think I got that notion from an IRS announcement for 2007 when June 30 actually fell on a Saturday, so that moving the filing date to the following Monday was logical (see here). Projecting that to 2009 was sheer operator error. Apologies to my readers.


  1. Hey, Jack:

    1. There's a June 24, 2009 update to the IRS's FAQ for voluntary disclosure, which you linked to on another post. They just took the old FAQ and bolted a bunch of extra stuff on the back. As usual, they didn't address the hard questions. They only gave the obvious answers to the obvious questions. You know, the questions that usually don't come up in Real Life. :-)

    2. Forget the timely mailed = timely filed rule. Detroit processes paperwork like this: (a) get envelope; (b) open envelope, remove contents; (c) throw away envelope. Plus it's a Title 31 filing not a Title 26 filing. What the IRS does say is that they're not picky about the deadline. They have informal slack in the system. This is a huge, huge point of misunderstanding with my clients. I hope they fix it.

    I'm doing a ton of these cases at the moment for (ahem) obvious reasons. :-) And the "tax criminals" that the IRS is finding? Five out of six for me will be ordinary citizens, mostly immigrants, who just have accounts overseas, usually with not-terribly-significant amounts of money, and all legit, legal, etc. These are the people the IRS is pounding with a stick.


    Phil Hodgen
    Twitter @philiphodgen

  2. Phil,

    Thanks very much for your comment.

    Your comments are good ones.

    I do note, however, that the IRS does suggest in the FAQs that the truly "innocent" (on a relative scale) may qualify for some form of relief by initially getting into the program and then opting out. By the time they have to make the choice as to whether to opt out, they should have some preliminary information about how the IRS might respond to their particular circumstances under the normal FBAR regime. So, if the amounts are relatively minor, legal, etc., I am hopeful that the IRS might exercise some discretion -- perhaps grace -- on the opt out to forego penalties or, perhaps, settle for something less materially less than 20%.

    I have found in my anecdotal data set of taxpayers, that some taxpayers with the lesser amounts involved are just hunkering down on the past years, filing their 2008 FBARs showing the highest amounts in foreign accounts (often just one foreign account), hoping the IRS is not likely to divert resources to the lower amount(s) on the FBAR report, repatriating the money to U.S. in 2009, filing thef 2009 FBAR when due, and hoping for the best. In those cases, the likelihood of criminal prosecution is not very great and the likelihood of no civil penalties may -- and I emphasize the "may" -- not be very great. I do not advise the clients that this is the best strategy or that they should even factor this type of thinking into determining their strategy. I do advise that, despite the penalty cost, the best risk-averse strategy is to at least join the program and then consider the opt out. I think this will assure for the "smaller" amount taxpayers no criminal prosecution at the risk to being potentially hammmered with the draconian penalties which may really not be so draconian.

    Finally, you like have noted that Mr. Rubinstein, the first of the UBS targets, in a plea agreement (I blogged it) only drew a 50% FBAR penalty for a single year, and he was a relatively big player in the offshore evasion gambit. To be sure, 50% is worse than 20%, but only 30% difference, and this does indicate, inferentially and perhaps, that the IRS is not going to be so harsh on relatively minor players who are outside the voluntary disclosure program.

  3. Hi, Jack,

    I hope that the IRS will have some sort of nuance in the way they impose penalties. I hope you're right. Let's see how the next several months go.

    There is a group of taxpayer that I think have a really hard decision to make -- those who are resident in the U.S. but not citizens. I'm thinking green card holders, H1-B people, etc. All of them have filing requirements. In some cases cleanup may jeopardize their immigration status. They'll have a harder decision because they face monetary and nonmonetary risks.



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