The IRS may send a warning letter in lieu of asserting penalties for failure to file a Form TD F 90-22.1, "Report of Foreign Bank and Financial Accounts," if it would be sufficient to bring the individual into compliance, an IRS official said May 17.Matthew Dalton, IRS May Issue Warning Letters on FBARs Instead of Penalties, 2012 TNT 97-3 (5/18/12).
The report is too cryptic to draw any firm conclusions and certainly is not a definitive statement of the IRS position. I do think, however, that the statement is a helpful indication that the IRS will be reasonable in applying the nonwillful penalty in audits (whether on opt out, quiet disclosure or go-forward) and, with other indications, may allay some of the fears in the community of taxpayers who had nonwillful violations.
I think that for most taxpayers an IRS warning letter would in fact do the job of getting them into compliance. Indeed, I think that if the IRS were to give more assurance to taxpayers of reasonableness, the IRS might find much more willingness in taxpayers to correct some past years' income tax underreporting and thus bring at least some marginal revenue into the Treasury for income tax. In other words, it could become really win-win for the IRS and at least the minnow taxpayers -- they get the assurance of moving into compliance with some correction of past years at the cost principally of income tax and perhaps and income tax penalty, but with no draconian FBAR penalty.
Indeed, I think the IRS and the country would be well served to announce that persons who will not be subject to the willful FBAR penalties (they will have to take the risk of making the right determination here) and who desire to join the OVDI program will get an FBAR penalty of no more than 1/2 the amount of the regular audit FBAR penalty. Of course, if the regular audit penalty for a nonwillful violator is zero, the program penalty would be zero. But, what this would do is to offer an incentive to these taxpayers to correct the income taxes for 2003 forward with some assurance that they will not be hammered by the FBAR penalty for coming into the program. And, keep in mind that the taxpayers submits all of the information to the make the income tax assessments, so that the IRS devotion of audit resources could be light. Win-Win.