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FBAR for prior years

Technical topics regarding tax preparation.
#1
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Taxpayer has never filed a FBAR on the cash surrender value of a life insurance policy carried by a foreign insurance firm. I am planning to file the last four years for him (2014, 2013, 2012 and 2011). Can all these 4 years be e-filed? If I remember correctly, e-filing of FBAR started in 2012 and therefore the 2011 one will have to be mailed one. Am I correct?
 

#2
Guya  
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No.

The prior paper form is obsolete. All FBARs are delivered by the client online.

Is the client going to quietly file these, use the OVDP or the onshore streamlined procedures?

Are you working under a Kovel letter?
PS – Greeting from London, England. Grey and rainy ...
 

#3
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Guya wrote:No.

The prior paper form is obsolete. All FBARs are delivered by the client online.

Is the client going to quietly file these, use the OVDP or the onshore streamlined procedures?

Are you working under a Kovel letter?


Is it that serious a matter?

We are talking about a cash surrender value of approximately $13,000 only. The dividend received from the contract has been reported on the tax returns through the years (he receives a Form 1099-DIV for it every year).

He has not intentionally avoided filing the form and there was no reason for him to avoid doing that either. It was just purely due to being ignorant about the filing requirement.
 

#4
Guya  
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Who was ignorant? Was it the client or the client's adviser?
PS – Greeting from London, England. Grey and rainy ...
 

#5
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Guya wrote:Who was ignorant? Was it the client or the client's adviser?


I know what you mean.

I had the incorrect idea that it was considered 'domestic' since there was a Form 1099-DIV issued every year. Of course now I know it is not true.
 

#6
supdat  
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See if your client qualifies for the Delinquent FBAR Submission Procedures to file without a penalty.

http://www.irs.gov/Individuals/Internat ... Procedures
 

#7
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supdat wrote:See if your client qualifies for the Delinquent FBAR Submission Procedures to file without a penalty.

http://www.irs.gov/Individuals/Internat ... Procedures


I think this is the procedure he will have to follow based on the instruction:

Follow these steps to resolve delinquent FBARS
Review the instructions
Include a statement explaining why you are filing the FBARs late
File all FBARs electronically at FinCEN
On the cover page of the electronic form, select a reason for filing late
If you are unable to file electronically, contact FinCEN's Regulatory Help line at 1-800-949-2732 or 1-703-905-3975 (if calling from outside the United States) to determine possible alternatives to electronic filing.


Just one question: how do you include an explanation statement when filing the FBARs electronically at FinCEN?
 

#8
Guya  
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100% of our clients file FBARs. We only prepare perhaps 5% of them for risk reasons. If your engagement letter and insurance cover the risk then you could choose to prepare FinCEN 114 and 114A. The explanation box is clearly visible on the FBAR form.
PS – Greeting from London, England. Grey and rainy ...
 

#9
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Guya wrote:100% of our clients file FBARs. We only prepare perhaps 5% of them for risk reasons. If your engagement letter and insurance cover the risk then you could choose to prepare FinCEN 114 and 114A. The explanation box is clearly visible on the FBAR form.


Thank you. I am aware of the explanation box on the FBAR form.

My question is that according to the instruction:

Review the instructions
(1) Include a statement explaining why you are filing the FBARs late
(2) File all FBARs electronically at FinCEN
(3) On the cover page of the electronic form, select a reason for filing late


If we have each instruction numbered, the explanation box that we are talking about is (3).

But then two instruction line above in (1), they are also saying to include an explanation statement. So I am thinking it is something in addition to the explanation box on the FBAR form.
 

#10
Guya  
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Subject to character number limitations one can type whatever one wants in the explanation box. Or...one can use the suggested words. Most of my clients type Streamlined Foreign Offshore in there. You may have other excuses...
PS – Greeting from London, England. Grey and rainy ...
 

#11
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Client just informed me that he has had a foreign bank account. Account was opened 30 years ago in his birth country (he is now a US citizen and has been for over 30 years). I told him to bring me the activity on the account for the last 6 years, and the result is the highest balance was over $10,000 in every year, and over $100,000 in the last 3 years. The account earned some interest but not much, about $300 per year that was not reported on his US tax returns. Most years he is in a 28% tax bracket so the tax is around $84 a year. This person pays over $100,000 in US tax every year for the last 6 years, so the $300 in interest is really not significant compared to his total tax.

Form 8938 was not filed in any year and the schedule B question was answered incorrectly, "no" on the foreign accounts over 10k.

I have never dealt with late filing of FBARS before - so in reading the choices it seems to me that OVDP is not necessary as it was not willful, not criminal. And if he files under the streamlined procedures he will be subject to the miscellaneous penalty of 5% of the account balance. And if I understand this correctly, the other option is to just file the late FBARS & file amended returns to report & pay the tax and then he will not be subject to the huge penalties. Is that a correct understanding of this? He has not been contacted by IRS and is not under audit. I am a little unsure because it says he has to have reported & paid the tax on the income (the tiny bit of interest - $300) and he didn't pay it yet but he will when I file the amended returns to report it, to correct the schedule B question, and file form 8938 to report the asset.

So my question - can he just file the amended returns & file the FBAR's & avoid the huge penalties?
Does he need to file 6 years of FBAR's and 3 years of amended returns?

Is there anything else I am missing?

Appreciate any help. The reason for not filing is that he misunderstood the requirements. In my organizer I ask the question but he didn't complete the organizer. I asked him every year about foreign bank accounts but he said no, but now he said he forgot about that account because he hasn't used it in so many years. Client is quite wealthy with total bank accounts over 5 million - he said he just forgot about it. Around 2012 there was a deposit into the account of around 150k which was a gift from a family member in that country and they deposited the money into his account, but he never took any money out or made any deposits in over 20 years.
 

#12
Guya  
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Your client is also missing a Form 3520 for 2012. Given the overall wealth I could imagine that the client might forget all of this. However you hint at a modest amount of wilful blindness. Given the way the IRS behaves, I would think overall that the domestic streamlined procedures are the best you could get.
PS – Greeting from London, England. Grey and rainy ...
 

#13
Frankly  
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kathyt wrote:So my question - can he just file the amended returns & file the FBAR's & avoid the huge penalties?
Does he need to file 6 years of FBAR's and 3 years of amended returns?

"Quiet filing" is an attempt to fly under the radar and hope you won't be detected. Quiet filing does not avoid the liability for penalties. FBAR penalty is $10,000 minimum, 3520 penalty is $10,000 minimum, etc. so one must weigh the risk of IRS sending a letter sometime down the road. How lucky do you feel?
 

#14
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I agree, this one is not the basic "small fry" stuff we're asked about before. He may have other things he's not telling you about and when you get into six figures my BS detector starts to wiggle a bit. I think a consult with a tax attorney might be in order. There's one we work with who will let us put the taxpayer on a conference call for no charge. He will lead the conversation and if he hears something important he'll shut the call down and tell the client to call him directly. That's when Kovel might come in.

The problem is you as an accountant should not be privy to potentially damning information that should be covered by attorney client privilege.

Bob
 

#15
JAD  
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I had a situation where we had not properly disclosed the client's investment in a foreign corporation. He has over 60 hedge fund interest, the K-1 section of his workpapers is over 1000 pages, and that's only one part of his return. The point is that it was not willful. It was just an honest oversight in communication. But to further complicate the issue, the company notified us a couple of years after the fact that there had been some taxable dividends (they had neglected to do an E&P calculation) so the client didn't qualify to simply make late disclosures without risk of penalty under OVDI.

Fortunately, I share another client with a tax attorney who was quite active in OVDI submittals, so I was able to pick up the phone and touch base. I learned a lot. My situation was a big deal that required discussions covered by atty/client priv and some serious decision-making.

So applying what I learned to your situation: If I were in your situation, I would tell the client that he absolutely has to talk to an attorney who specializes in these issues. PM me if you want the contact information for the atty who helped me. She is in San Francisco.

Also, on another board, there is a practitioner who would lecture you about determining whether or not the client's intentions were criminal. He would say that making that determination is the practice of law. I don't agree in all situations. IMO, sometimes it's just a fact. He would take me to tasks for my opinion - but I thought I'd put that out there for your consideration.
 

#16
EADave  
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Maybe I am ignorant about these issues as well, but Guya, what is the deal about filing the FBAR on behalf of the client?

I file only 2 a year (2 separate clients) and the highest total value of the assets combined for those accounts couldn't purchase a Tesla (under $100K). Should I not be filing these reports for the clients? If not, why not? Am I missing something here? I just thought it was more of a duty for us to prepare these reports than to put it on the client, whom are clueless to these requirements.
 

#17
JAD  
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I'm not Guya, but in case you were reading my post as a caution against preparing the FBAR, that's not what I meant. What I meant was that the late FBARs are a very big deal, best dealt with by a tax atty w/ experience and knowledge of the details of OVDI, IMO.
 

#18
EADave  
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Sorry, I was responding to this, "100% of our clients file FBARs. We only prepare perhaps 5% of them for risk reasons."
 

#19
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Thank you so much for your responses, I am so glad I asked the questions instead of proceeding on my own. I have a meeting set up this week with a tax attorney. Thank you all so much.
 

#20
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EADave wrote:Sorry, I was responding to this, "100% of our clients file FBARs. We only prepare perhaps 5% of them for risk reasons."


Dave, I have a good friend who's a CPA and has his Masters in Taxation. He's a partner in a firm who deals with high net worth people like 25 mil and up. His firm never does FBAR's, those people have their own attorneys and let them handle it. He does the accounting and the tax returns. The problem is FinCen is under Treasury not the IRS. That means only an attorney can represent a taxpayer in these matters.

About 5 years ago one guy and his long time girlfriend had over 300K between the UK and Singapore and never filed an FBAR. We referred him to the attorney and we did all the 1040X's. 50K in penalties and the tax due on the 1040X's was like $50 to $100.

Us regular tax preparers don't want to touch something like that. You leave something out, didn't ask enough questions, your client is a complete liar (Directly from the attorney's mouth, when you're talking real money they're all liars) and it all comes back on you.

Bob
 

#21
Guya  
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Bob is correct - FBARs are overall very time consuming and confusing and clients do not value that time adequately. Many clients have no idea what foreign accounts they have.

Let's pick on me. I live in London. Pretend I was a US citizen and I was your client for this example. What foreign accounts do I have. Yes I have 2 or 3 banks accounts; that's easy. However, is my Sydney Australia Opal transit Card that is roughly AUD$20 in credit an account? Are my 3 Transport for London Oyster cards (2 of which are over-drawn) foreign accounts? Which of my several UK pension plans are foreign accounts? Are gift cards I was given for Xmas from British supermarkets foreign accounts (all UK supermarkets have banking licenses as they all offer bank accounts)? Which of my British credit cards are foreign accounts (they are all sometimes in credit because I pay the same amount each month to simplify my life)? Is my online Lottery account FBAR reportable? How about my (several years dormant) online gambling accounts that I have forgotten how to log into?

These circumstances are fairly typical...how about my iPhone / Apple Pay in the UK...and every other electronic wallet you can think of...

What is the risk for the preparer if any of these items were missed; just $10,000 for each...could be...
PS – Greeting from London, England. Grey and rainy ...
 

#22
FLAcct  
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I'm wondering if any of us have checked to see if their E&O insurance will cover FBAR penalties since this is not a tax return, but a Treasury filing.
 

#23
EADave  
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That's why I like this site. It gives me an opportunity to nearly have a heart attack without ever having to, say, swim with sharks or skydive. I can just tell you guys what I get myself into and then let all the blood drain out of me when I realize I could have just put my head in a tiger's mouth! And you you never judge me to boot!!

Thank you Bob and Guya for your responses. My clients I mentioned aren't that sophisticated, but you are right, I have no idea if they are not telling me the entire truth and maybe their memory is no good anyway. I'm gonna Google "London Oyster Cards".

Alright, now I'm gonna go eat a triple cheese burger and jump out of a perfectly good airplane!
 

#24
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CrickTaxEA wrote:The problem is FinCen is under Treasury not the IRS. That means only an attorney can represent a taxpayer in these matters.


I hope you are not saying that only attorneys can complete FBAR's as that is absolutely not true.
Steve Kassel, EA
 

#25
Frankly  
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skassel wrote:
CrickTaxEA wrote:The problem is FinCen is under Treasury not the IRS. That means only an attorney can represent a taxpayer in these matters.

I hope you are not saying that only attorneys can complete FBAR's as that is absolutely not true.

More than that, an EA or CPA can represent a taxpayer with regard to FBAR, OVDP, etc. Just fill out the 2848 with the appropriate tax matters listed.

If one is not comfortable dealing with foreign asset reporting and doesn't want to learn about it, it's fine to farm it out to another professional. A tax attorney doesn't necessarily have anymore knowledge of the subject than an EA or CPA.
 

#26
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This is news to me. This article spells out what I've learned from several seminars I've taken:

https://www.irsmedic.com/2013/03/19/irs ... -attorney/

This is from 2013, are you saying this has changed? if so, my bad I guess I missed that. I remember when the 3rd party preparer function was added to FinCen but I don't remember hearing that also allowed the use of the 2848. Also I'm not saying we cannot prepare FBAR's I'm saying that generally it's a bad idea. Why? Read this except from one of the regular newsletters I get from the Wolfe Law Group:

Tax practitioners, both Attorneys and CPAs, who have tax clients who have committed tax crimes (e.g. Tax felonies: willful evasion of tax, obstruction of tax collection et al) may not have an attorney-client privilege for taxpayer communications to them. Since the attorney-client privilege belongs to the client, the client’s intent determines whether the exception applies. For those tax practitioners, who continue representing non-tax compliant taxpayers (who remain non-tax compliant despite being informed of their legal obligations by the tax practitioner) they may subject themselves to IRS/CID investigation and US Dept. of Justice criminal prosecution for two separate felonies: conspiracy to evade taxes (18 USC 371), and misprision of a felony (18 USC 4).

Under the crime-fraud exception to the attorney-client privilege, a client’s communications to their attorney is not privileged if made with the intent of committing or covering up a crime or fraud which may include “tax crimes” including: willful evasion of tax, conspiracy to commit tax evasion, obstruction of tax collection, filing a false tax return et al. In the recent 2016 case of oil investor Morris Zukerman a Manhattan judge ordered his attorneys to appear before a grand jury to give testimony (which Trial court order was upheld by the US Court of Appeals 2d Circuit). In the face of his attorneys having to potentially appear before a grand jury and give adverse testimony (contrary to his interests), Zukerman plead guilty to two felonies for tax crimes: tax evasion, and obstructing tax collection and awaits sentencing.

Taxpayers who cheat on their taxes either by not filing tax returns, filing false/fraudulent tax returns, fail to disclose offshore bank accounts/ holdings and/or foreign financial assets if construed as willful tax evasion have no attorney-client privilege for their tax crimes (IRC Section 7525), have no attorney-client privilege for their continuing willful evasion of tax (crime-fraud exception). They place their tax advisors in harm’s way for criminal prosecution for conspiracy to commit tax evasion, and misprision of a felony. In addition, dependent on their involvement for the purchase of assets, with the tax evasion proceeds, tax advisors may subject themselves to additional jeopardy for money laundering, wire fraud and mail fraud (each additional 20 year felonies). So, if there is no attorney-client privilege, and a risk of criminal prosecution what should a tax advisor do in response? Best plan is to get expert advise and if necessary withdraw from representation before it is too late.


This is the conclusion of a pretty detailed article that starts with the Panama Papers debacle and the over 3,000 US taxpayers that have been uncovered so far. He also explains the many ways someone can get tripped up with their foreign accounts/assets. Two big ones are bankruptcy court and divorce proceedings. In both cases they're required to disclose everything they own worldwide under court order and refusing to disclose leads to a contempt charge and of course lying under oath is perjury. Once this stuff is in open court the IRS/DOJ has full access to it.

This is why I've said before that while I have assisted a few people who are not computer savvy to access the FinCen website and fill in the blanks, I've never done an FBAR myself because I've not created an account and don't intend to.

Bob
 

#27
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If that article had any credence, no one could or would ever represent delinquent taxpayers for fear of criminal prosecution. It's utter nonsense.
Steve Kassel, EA
 

#28
Frankly  
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CrickTaxEA wrote:This is from 2013, are you saying this has changed?

Since 2013 the old TDF 90–22.1 is obsolete. FinCen 114 is the new way to report.

Re 2848, see FAQ #48, which also has a link to a properly completed form with the appropriate tax matters and acts listed. https://www.irs.gov/individuals/interna ... 12-revised
 

#29
kathyt  
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Thanks Steve, after reading the above article from CricktaxEA I, felt like EADave, having a heart attack without skydiving. I will sleep much better tonight.
 

#30
Frankly  
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CrickTaxEA wrote: Also I'm not saying we cannot prepare FBAR's I'm saying that generally it's a bad idea. Why? Read this except from one of the regular newsletters I get from the Wolfe Law Group...

Mr. Wolfe (esq) writes a lot of interesting bloggy things and while I've never found anything to be factually incorrect, he does seem to be an alarmist. He's prone to presenting the worst-case scenario with warnings of what might happen should you make a misstep. Attorneys tend to be that way. How many situations do we get into that are actually "worst case"?
 

#31
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I read about adding FBAR's to the 2848, thanks for that. I doubt I'll ever do that but at least I know about it.

Attorneys tend to be that way. How many situations do we get into that are actually "worst case"?


Of course I get that but, all it takes is one to ruin your day. People are extremely secretive about these things which is why you may not have the full story. Like the attorney at the seminar said, when it comes to foreign family connections and money your clients are liars. They tend to come from cultures who never, ever give up private financial information beyond the bare minimum. This is why Guya said what he said and is why my friend who works with a lot of foreign people doing business in the US won't touch FBAR's either. The primary presenter at that seminar is a CPA who has a firm specializing in this area but he never handles these cases by himself. It's always with an attorney under Kovel and that's how his talk started after the introductions. "Let me tell you about Kovel".

When people talk about representation in this area, this is all I'm saying. It may not be a good idea to do it by yourself but if someone is comfortable doing that, great.

Bob
 

#32
Guya  
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This decision earlier this week in this case (https://cdn.ca9.uscourts.gov/datastore/ ... -16214.pdf) is relevant as many clients will use transfer agents such as TransferWise, CurrencyFair (and their competitors https://www.icomparefx.com/transferwise-competitors/) to move currency. These online transfer agents will it seems all need to be reported on FBARs. (Please be aware that FirePay referred to in the case discussion shut down in 2007.)
PS – Greeting from London, England. Grey and rainy ...
 

#33
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Great case. When you read it it's obvious that FirePay would require an FBAR but this shows just how detailed your questioning needs to be, I can see people failing to mention this because they think it doesn't matter. The footnote describing how the IRS tried to change the definition at the last minute concerning the two Poker sites shows how they try to throw crap at the wall...I loved the phrase "too little, too late". Years ago I was trained to give an auditor every possible thing to sustain our argument because if it goes to appeals, you can't show them something that you didn't give to the original auditor. I see the same principle applies to an appeals court too.

Bob
 

#34
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i also like to stay away from filing these forms.

in fact on my one page organizer, i have about 5 questions
and they are all about foreign financial accounts.

this way i have something from them in writing.

also be careful not to say foreign bank accounts, but rather
foreign financial accounts.

here's a video from the IRS from several years ago that i thought
was pretty good.

http://www.irsvideos.gov/ElectronicFBAR/
 


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