singing the FATCA pseudo-blues

I'm branching off from another thread about penalties on late filed returns where there is no balance due. This comment was made there:

Failure to file a timely information return such as a 5471 or 8938 carries a potential fixed $10,000 penalty, whether or not there is tax payable.

I hate this. The penalty is tremendously out of proportion to the violation, at least in the case where no tax is due. In fact, one tax research publisher has suggested that simply filing an amended FATCA form, after the deadline and after timely filing the original, would be subject to the penalty, since it means you didn't file an accurate form on time. (Anyone have a cite or field experience that contradicts this?)

My story: I'm working to finish the client return on extension Oct 17, there is a lot of foot-dragging but I finally notify client that it is ready to file at around 1 PM. For reasons as yet unknown, client never responded with signatures or invoice payment the rest of the day. Client usually files at last minute, but haven't had this problem before.

Client previously mentioned that he was expecting fed and state refunds, and didn't think filing by the deadline was critical. I made the mistake of basically agreeing with him in a casual comment by email. Ooops! A few hours later, I did send a follow up email saying, "I think it is a good idea to file on time anyway, as there is a FATCA form and it's better safe than sorry". I knew there was some key issue, but too busy to stop and look it up.

So, then I see Guya's comment above, and think, "Oh sh!t", is this guy going to get a $10K penalty and then say it's my fault for telling him that filing late is no problem? I spend the next hour worrying about my E&O insurance, about client's responsibility to file on time per my engagement agreement, etc.

Then, I remember that while this fellow is required to file FBAR (which we've always filed on time), he is actually not required to file FATCA since he is just barely under the $50K end of year threshold (and the $75K during the year as well). We have only been filing the FATCA in the past for two reasons: 1) most of the work is already done with the FBAR, and 2) better safe than sorry given how high the penalty is (how ironic).

So I'm relieved, but now I would like to ask/comment the following:

1) Don't EVER tell a client that it is "OK to file late", even with no balance due! (although this is something that is almost always true, the other key issue being elections that can't be made on late filed returns).

2) Is filing FATCAs that are not required a good idea, under the "better safe than sorry" approach?

3) in this particular case, would it be possible that the IRS would assess a FATCA penalty for filing a not-required form, late? I think this is the year to omit the form from the return, but curious about other thoughts.

Bump for curiosity. I have a new client this year (2018). There was confusion as to whom would be filing the extension; him or I. By the time he responded to me, it was too late. Lo and flippin’ behold, he has a 8938 and 5471 requirement.

Anyone here with a late filed return for a client who was charged this egregious penalty? Any reasonable cause available for missing the deadline. I suppose we could say we assumed the prior accountant filed the extension. Also, we had no information from the client until the day after the deadline.

We can’t file for about another month; waiting on a K1 with substantial income; that’s the holdup.

File now and amend when the K-1 comes in. It shows the client is making a good faith effort to comply with the rules. Reduces risk, especially if filed this week.

Of course, if there is a 5471 filing requirement, you need to make sure the client picked up the 965 transition tax inclusion for 2017 and picks up the GILTI inclusion for 2018.