The IRS recently released an update to the section of its Internal Revenue Manual on appeals and penalties for taxpayers who have allegedly failed to file Reports of Foreign Bank and Financial Accounts, or FBARs. Most of the update comprises clarifications on how FBAR penalties will be reviewed administratively by the IRS Office of Appeals. The precision of these updates, however, suggests a new clarity and focus at the agency. To put it plainly, the IRS may be done messing around when it comes to FBAR compliance.
U.S. taxpayers who have any financial interest in one or more offshore bank accounts with an aggregate balance of $10,000 at any point in a year are required to e-file FBARs. Failure to do so can trigger substantial civil penalties -- especially if the IRS determines the failure was willful -- even criminal charges. The FBAR requirement is in addition to Form 8938 required by the Foreign Account Tax Compliance Act.
You should also know the IRS is actively pressuring foreign banks to report U.S. taxpayers' accounts. If you want to participate in the Offshore Voluntary Disclosure Program (OVDP), you must act before the IRS is notified of your account. If the IRS finds out about an offshore account before you report it, you will face higher civil penalties and potential criminal prosecution.
Continue reading IRS's New Manual May Suggest Added Scrutiny of FBAR Compliance
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