FBAR

New client this year. During the preparation process of his 2017 tax return, I found out he is required to file FBAR. No problem with it for the year 2017, I will help him to file that for this year.

However, his problem is that he has never filed a FBAR on this foreign account before while it seems he was required to do it (at least in the previous few years). He said his former tax preparer has never even raised this topic to him. That is a foreign account of an insurance policy. The cash surrender value of the policy was just over the $10,000 filing threshold.

Other than paying $500/hour to hire a tax attorney, what is the best option for him under the situation? Would it be advisable for him to just go ahead to file the last 3 years or 6 years FBAR now as late returns?

He is an article which I agree with. If all income was reported and all taxes were paid, I carefully evaluate the "quiet disclosure" option.

https://www.natlawreview.com/article/wh ... inancial-a

Do you have an opinion or is there a commonly accepted practice as to the number of years that he should go back to file the late FBARs? Lets say he was within the filing threshold in the last 15 years, how far back would you go?

I wonder if the foreign life insurance qualifies as “life insurance” under Sec. 7702. If not, you would have to pick up the increase in value in the policy each year as income under Sec. 7702(g).

If the returns (including Schedule B Part III and calculations of PFIC income within the insurance policy) were incomplete; the typical option would be streamlined. If it's domestic streamlined $10,000 @ 5% will be peanuts. The expensive thing will be the calculations. An FBAR is not a tax return; the previous preparer may not have had an engagement with the client that included FBARs at all.

The rules have changed significantly and I would not use any old information such as the article from 2015. The current information is linked below.

https://www.whiteandwilliams.com/resour ... grams.html

The $10,000 threshold has been around almost since the memory of man runneth not to the contrary. Maybe some of these clients are not hiding money overseas to evade US taxes, but perhaps for other reasons, convenience when traveling etc., e.g. for a person who visits relatives in a foreign country? Is the US really interested in taxpayers that have such an account(s) in the low 5 figures, e.g. maybe $15,000? At least In recent years these accounts have not earned very much interest, if any. Certainly if in the unlikely event such a small account were discovered by the powers to be they would reasonably exercise some enforcement discretion.

Other than paying $500/hour to hire a tax attorney, what is the best option for him under the situation?

You're willing to open the client up to 50% penalties and yourself up to a malpractice lawsuit to save the client an hour or two consultation with an attorney? At least discuss the situation with your malpractice insurance carrier before advising the client.

Personally, I don't advise one way or another. I explain the possibilities and leave it up to the client.

Personally, I don't advise one way or another. I explain the possibilities and leave it up to the client.

That is what I am gonna do now. Explain to him the 'quiet disclosure' and the possible aftermath or making an appointment with a tax attorney.

Actually, am I obliged to jump into the mess? He is a new client and I will file the 2017 FBAR for him. As for the prior years, am I required to participate in the corrective process? I am not even equipped with the expertise to advise him as to which is the best way to go.

An FBAR is not a tax return. You have an engagement to prepare an FBAR for 2017. Are you planning to report any income on the contract for 2017. This article may help: https://www.kpateloffice.com/foreign-li ... -taxation/

The IRS website is actually helpful with these types of issues. Check out the streamlined procedures and the Delinquent FBAR submission procedures. No need to risk a "quiet disclosure".

https://www.irs.gov/individuals/interna ... procedures

The IRS website is actually helpful with these types of issues. Check out the streamlined procedures and the Delinquent FBAR submission procedures. No need to risk a "quiet disclosure".

https://www.irs.gov/individuals/interna ... procedures

I concur.

If I can piggyback on this, as it seems the most similar and most recent as the situation I'm trying to deal with:

S Corp owned a SMLLC, which had two foreign bank accounts. Each has a highest balance of probably ~$20k - $30k. No income related to these bank accounts - not interest bearing, and they operated as basically a cost center. No income deposited here, just money transferred in to pay expenses out of them. Neither the S Corp (or LLC, but which I believe can file consolidated with the S corp) or its 100% individual owner has filed an FBAR. It appears these accounts go back at least 10 years (the current CFO has only been there about 5, so it will require some digging, if needed, to confirm in detail.)

I actually find the IRS guidance not helpful, primarily in that there is no income that wasn't reported or tax that wasn't paid. In my understanding it seems unnecessary or even unqualified to do the OVDP or the streamlined procedures, as there isn't any new tax due. All that's not filed is the FBARs. But the delinquent FBAR submission procedures seems to say you must do all and any past years that haven't been filed.

So if going under the delinquent procedures, are we at risk of huge penalties by doing any kind of cut off (6 or 8 years)? I feel the situation doesn't really fit into any of the categories and I'm confused as to what the appropriate procedure is. Appreciate any direction/guidance.

This subject comes up a lot and is subject to opinion. First read this from irs.gov put FBAR in the search box.

Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

The bottom line is the second paragraph. If you think your client meets this criteria then advise them to do the FBAR's and of course what's the reason for not filing? "I had no idea about this until I was recently advised about it."

That's it, done. I see no need to do anything but follow these instructions on the IRS website. I've had maybe 10-12 clients over the years who did this with no issues. Now where it gets sticky for me is when the amount isn't 10-30K or so but it's 100K or more. I had two of those one about 300K and another for 250. Those I referred to an attorney because if they have that kind of money overseas you know there are other foreign issues and I want the client protected by privilege.

Everybody I talk to whether they told me about foreign stuff or not gets "The Talk". I explain how this works especially the reciprocal intercountry reporting under FATCA and let them decide. I do not do FBAR's clients I merely point them to the this IRS webpage, look for the BSA link, tell them to read it carefully and ask them to send me a copy of the FBAR for the file. If I get a whiff that there could be more they're not telling me I'll say so and tell them I can give you the number of a good tax attorney right now. It's not in your interest to go any further with me.

Bob