How to Navigate an FBAR Examination: What You Must Know

How to Navigate an FBAR Examination: What You Must Know

How to Navigate an FBAR Examination

The FBAR is a U.S.C. Title 31 Money and Finance form used to report foreign bank and financial accounts to the U.S. government (FinCEN). Since the early 2000s, the Internal Revenue Service has been tasked with FBAR administration, and in recent years they have significantly increased enforcement of foreign accounts compliance — with a specific focus on FBAR (aka FinCEN Form 114) filing and reporting. Just as the IRS has significantly increased enforcement of FBAR compliance, they have also more aggressively pursued Taxpayers with FBAR audits and examinations. For Taxpayers who are out of compliance with FBAR — if they find themselves under audit or examination before they have had a chance to proactively submit to a disclosure program such as the Streamlined Procedure — it may result in significant FBAR fines and penalties. Let’s go through some of the basics of navigating an FBAR audit.

First, can you Prevent an FBAR Audit?

There is no bulletproof way for a Taxpayer to prevent an FBAR audit. In other words, even if a Taxpayer properly reports all their foreign accounts and assets on the annual FBAR, they may still find themselves under audit or examination. Therefore, please be aware of any attorneys or other tax professionals claiming that just hiring that firm will automatically mean they will avoid an audit or examination — because that is simply not true.

FBAR Statute of Limitations and Civil Fraud

In general, the statute of limitations for FBAR is six (6) years. Therefore, the U.S. government can typically go back six years in an audit or examination setting to ask questions about Taxpayer prior reporting. It can get more complicated because, in matters involving civil fraud, the IRS can go back more than six years period therefore – and oftentimes an FBAR audit may coexist with other types of violations such as fraud and Taxpayers should be aware of this during the audit.

Does the Taxpayer Have the Foreign Account Information?

When a Taxpayer is under audit for FBAR, they will receive an information document request requiring the Taxpayer to provide certain documents or objectives as to why those documents are not relevant or should not be provided. The Taxpayer is required to do a diligent search to try to locate the information.

Did the Taxpayer Communicate with the Foreign Financial Institution?

While it is not uncommon for Taxpayers to not keep information regarding a foreign account that they may not access, when it comes time for an audit, the Taxpayer is required to try to obtain information relevant to the document request. Therefore, Taxpayers should try to contact or communicate with the foreign financial institution if they are going to participate in the audit.

Are the Foreign Documents Translated into English?

The government requires that the documents are in English. In our experience, we have found that some agents are amenable to receiving translations using things such as Google Translate, whereas other agents require a certified translation.

Did the FBAR Audit Turn Criminal?

Unfortunately, sometimes an audit can turn criminal and that includes FBAR Audits as well. More specifically, during the civil audit, the agent may determine that the Taxpayer may have committed a criminal violation and then they will stop the audit and refer the matter to the special agents for review. If at any time before or during the tax audit, the Taxpayer believes that they are under criminal investigation it is important that they retain an attorney to represent them and preferably they should have a Board-Certified Tax Law Specialist.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.  *This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.