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  1. Hi Phil,

    Thanks for your soothing words…

    I have only amended them for myself to be able to have have some idea what’s going on and I have not mailed them…

    I wasn’t sure if I should send the past FBARs and amended returns or what…I plan to do full FBAR disclosure with my 2011 return…. ?

    Feeling a little better…

  2. @Franek,

    Stop hyperventilating. You’ll be fine. Do 2011 and future years correctly and carry on with life.

    Me personally? I would not have amended tax returns for such trivial amounts.


  3. I forgot to add that these account probably had at most 3 transactions a year nothing more…sometimes just 2 (like my father in law insurance policy deposit)…

    And I have all the records showing that he deposited and/or took the money out…

    I recall that some transactions like payments could be not accounted for in FBAR calculation requirement….(I thought I saw it somewhere but cannot find that source ant more (probably because I am now just a big ball of anxiety)…is there a slight possibility…?

    I can’t work, can’t sleep….

  4. I am truly freaking out and on the verge of having a nervous breakdown…

    I have moved permanently abroad from US Jan 01 2011 and started researching how to do my taxes and came across this whole FBAR issue….I am losing my mind….anxiety has taken over my life…

    Here is my story in brief:

    I have had two foreign account since late 2007 and I crossed the 10000 threshold in 2008,2009,2010 (several times not intentionally)….I didn’t know I had to file the FBAR!

    I just did the amended returns for all 4 years accounting for all the interest accumulated from those accounts and own a total of $13 for all 4 years…

    Interest paid on this accounts was very small…

    2007 – I owe $5 – but not FBAR was needed (THANKS GOD)
    2008 – looks like I owe nothing for 2008 (even with the few extra dollar of interest)…looks like the FBAR was needed anyway
    2009 – I owe $3 … looks like the FBAR was needed anyway
    2010 – I owe $5 although I applied overpayment for 2010 to 2011 so IRS already has money. Looks like FBAR was needed as well.

    What do I do???…

    I have been paying thousands of $ is taxes every year diligently but forgot about these 2 small accounts which (1) had minimal APY and which (2) I used to pay back my parents only…so the transactions that put me over 10k are those payments that were taken out of the account within 2 months of my deposit..sometimes they were taken out within the same month…

    My father in law also didn’t know any better and deposited his life insurance policy proceeds into my account and then took it out 2 days later without my knowledge…

    OH MY GOD….am I going to get penalized so much for $13 over the course of 4 years????? How much penalty am I looking at? I am sooooo worried…

    Can someone please offer some advice or share something encouraging based on my situation?

    Thank you so much !!!!!

  5. Life insurance policies with cash value, but no payout, stocks with no dividends in a financial account, accounts with mere signatory authority, but no financial interests etc.

  6. I guess the implication then is that without our voluntary compliance, the government isn’t actually successfully doing that many criminal FBAR cases.

  7. Tell me who would have to file an FBAR, but would have no income? Is that even possible? These are all money accounts, pension plans, checking accounts etc..If you aren’t even making a penny in any of these accounts you have other problems. So this idea of being “okay” since you made no income with these accounts seems strange. Even $5.00 interest on savings is income.

  8. Anyone seeking evidence of the lack of law enforcemment usefulness of the FBAR can obtain this by implication from the FINCEN website itself.

    Enter “FBAR” in the search field and you will be underwhelmed by the number of reported law enforcement cases in which the existence of a FBAR (as opposed to its non-existence) somehow assisted in enforcment of the law.

    There is just one.

    And I say “somehow assisted” because there is nothing in the summary of the case that indicates what role, if any, the discovery of the existence of the FBAR – as opposed to the more numerous SARs – played in the successful resolution of the case.

  9. Mr. Nolan, excellent comments. Thank you very much. Now perhaps Phil would consider featuring it in a full post so that it gets the attention it deserves.

  10. To my knowledge, since the JOBS Act introduced the FBAR enhanced penalty regime in October 2004, there has been no civil case brought against anyone for enforcement of a FBAR penalty. (I am aware, however, that recently a criminal case was recently initiated alleging a single count of criminal non-filing.)

    Nor am I aware of a single case in which a FBAR penalty, as such, has been paid by anyone – whether “voluntarily” as part of a plea bargain or “involuntarily” by judgement of a Federal court following a contested civil or criminal prosecution for enforcement of same.

    Technically, the much-ballyhooed agreements by defendants to pay enhanced sums of money incident to a plea bargain are not FBAR penalties. Clearly, however, it is the threat of such FBAR penalties – and extra time in Club Fed – that induced such agreements.

    I am not aware of any case in which a civil FBAR penalty has been asserted for simple late filing of a FBAR – for any reason. I am also unaware of any case in which a late-filed FBAR has caused the late filer to receive a demand for a payment for any maximum or lesser civil penalty amount based on simple tardiness.

    (NB: the FBAR statute and its penalties makes no distinction between late and/or inaccurate filing and non-filing.)

    To my knowledge, neither the FBAR filing obligation itself nor its penalties has ever been tested for constitutionality.

    Nor do I believe that Treasury is confident that the criminal and/or civil FBAR penalties would be able to withstand a constitutional challenge.

    In my view the FBAR’s mere existence is constitutionally infirm on substantive due process grounds. To wit:

    I do not believe that Treasury, which invented the FBAR in 1970 in response to authorizing legislation found in the Bank Secrecy Act, has ever even attempted to meet the strict factual predicate imposed by Congress on Treasury in the BSA: that whatever data the information Treasury demanded should have a “high degree” of regulatory or law enforcement usefulness. I believe that if Treasury were compelled through civil or criminal discovery or even by a simple FOIA or Privacy Act request to produce substantiating evidence of any law enforcement or regulatory usefulness over the last 40 years that they would be hard put to do so; much less a “high degree” of such usefulness.

    (Just for fun: maybe tax practitioners could develop a FBAR Privacy Act/FOIA request that would be filed automatically by every one of their clients who timely files a FBAR every year. It would cite the language of the privacy act notice at the bottom of the TD F 90-22.1 and demand a copy or summary of every report or document generated by FINCEN or Treasury that made use of the filer’s data and simultaneously demand all documents that might tend to substantiate the validity of the assertion of usefulness found in the Privacy Act notice at the bottom of the TD F 90-22.1)

    As any constitutional scholar will be quick to tell you, “substantive due process” is a thin reed upon which to rest one’s hopes for a constitutional challenge to the validity of anything authorized by Congress.

    The real constitutional vulnerability of the FBAR, however, lies in the 8th Amendment’s “excessive fines” clause.

    A good constitutional challenge to FBAR, therefore, would be a three-stage attack based on:

    1. Substantive due process – i.e. not rationally related to the promotion of any legitimate government interest and/or failure to meet the Congressionally prescribed substantive prerequisites.

    2. Privacy act – the argument would be that the FBAR is of such dubious usefulness to any legitimate government interest that it is easily trumped by legitimate expectations of personal privacy. (Yuk-yuk. As if Americans had not long ago forfeited whatever rights to financial privacy they may have ever had!)

    3. 8th Amendment – given the paucity of any current or historical evidence of law enforcement or regulatory usefulness over the more than 40 years of its existence, the original – much less the enhanced -penalties for non-filing are grotesquely disproportionate and constitutionally excessive under the 8th Amendment.

    My guess is that Treasury will want to exhaust the revenue potential of its current crop of big-bucks tax-haven prosecutions before it will take the risk of such a challenge.

    In the meantime, as Son-of-FBAR gets up and running next year the ease of collecting its penalties under Title 26 will gradually supplant the revenue enhancements available under the old FBAR.

    At that point Treasury may feel it can safely take the risk of subjecting the old FBAR to constitutional challenge with the knowledge that, if they lose, they will have a back-up readily at hand that is probably constitutionally unassailable.

  11. I don’t see why someone who didn’t know that they were a citizen would give dog manure about the USA or what the IRS thinks, says or does. I have a great revenue plan for the USA. Declare every man, woman and child on the planet a citizen and then assess them a 5% FBAR penalty.

  12. There are 3 levels of penalty
    1) Reasonable cause — essentially, no penalty
    2) Non-Willful — 10K per violation
    3) Willful — don’t ask.

    If someone did not have to fill in Schedule B, then I think he has very strong grounds for falling into 2 or 1. Even the IRS’s own manual uses that question as a guideline for non willfullness. However, it may still be hard to get a reasonable case (no penalty) exception.

  13. Bill, you are obviously correct. But how many individuals read the instructions to a Form (for example Schedule B) when they don’t fill out the form in the first place.
    The FBAR has to do with assets abroad, not income. Why doesn’t the IRS simly put the foreign financial interest warning on form which everybody must fill out, rather than on a form which has to do with income?

  14. If you read the instructions to the schedule B, it says it’s required to be filed if “You had a financial interest in, or signature
    authority (or other authority that is comparable to signature authority) over, a financial account in a foreign country or you received a distribution from, or were a grantor of, or transferor to, a foreign trust.
    Part III of the schedule has questions about foreign accounts and trusts”

  15. Regarding Mr. Feldman’s inquiry, I think one crucial question is whether there was foreign income. If there was no foreign income, and we’re just dealing with failure to file FBARs, then that can be rectified by now submitting retroactive FBARs, with an explanation (e.g., accountant error). Pursuant to 2011 OVDI FAQ 17, there will be no penalties.

    On the other hand, if there was unreported income as well as FBAR non-filing, then FAQ 17 is not appropriate, and the taxpayer should consider the OVDI. Within the 2011 OVDI, as we know, reasonable cause is a non-issue and is not considered by the IRS.

  16. I’ve had many cases where accountants were aware of clients’ foreign accounts, but did not prepare the FBAR (notwithstanding Form 1040, Schedule B, lines 7 and 8 and the direct reference to the FBAR), or gave incorrect advise regarding the need to file FBARs.

    In one OVDP case, the IRS agent advised us that if the accountant were to submit a signed affidavit setting forth an affirmative statement that the accountant advised the client that the client need not submit FBARs, then the IRS might reduce the penalty. In other words, if the accountant would take the blame for having given bad professional advice, then the IRS might lower the penalties.

    I have little expectation that a CPA who gave incorrect FBAR advice or failed to prepare FBARs would make such a written admission about his or her failure.

    I think that we will soon see many lawsuits initiated by taxpayers against their tax preparers based on FBAR negligence, whereby the taxpayers will attempt to recoup, from their tax preparers, the penalties that they had to pay the IRS.

  17. The sad thing about this question is that must be asked at all. Yet, unfortunately, this is a legitimate question with real consequences.

    These are the results of the IRS’s jihad against ordinary taxpayers.


  18. Another issue about reasonable cause is where an individual cannot or has not conclusively determine whether they previously relinquished US citizenship. What if they honestly believe they’re not a US citizen? If they’re not a US citizen, then why would they file anything? The laws/rules/policies around voluntary relinquishment certainly are not entirely clear, especially in terms of how the new rules relate to events which took place 30 years ago or more. For example, what if they renounced 30 years ago at a time that the age of 18 requirement did not apply. The law forcing them to give up dual citizenship might have been found to be unconstitutional, but that wouldn’t necessarily mean that their voluntary relinquishment was invalid. Why would such a person join OVDI, or file anything unless or until they are determined to be a US citizen? Should somebody like this apply for papers so that they have some certainty? If they do, does the very act of filing for the papers put them “on the radar” in the US system and thus more likely to be subject to a future problem? Any thoughts?

  19. A US citizen abroad has an account over the $10’000 threshold, yet the interest does not exceed $1500. The US accountant doing the tax returns files a 1040, but no Schedule B as the income threshold is not achieved. It is on Schedule B only where the taxpayer is notified of the FBAR requirement. Because a Schedule B was never filed in the past, client was truly unaware of the FBAR reporting requirement. Non willfull if there ever was one, you would think. Any thoughts ?

  20. If you guys don’t know the answer, it would seem that I took the correct course to relinquish citizenship and basically stop cooperating with the IRS, rather than make the quiet disclosure. The voluntary programs were just a money grab.

  21. Yeah I wish I had an answer.

    Seriously though. If people (like Mark Feldman, like his friend he talked to, like me, like so many others) who live in this sub-specialty of tax don’t know WTF the rules mean, how are ordinary people supposed to know?


  22. Phil

    I was hoping a good lawyer like you could answer that question :-). The statutory language seems a little confusing since I think clause II refers to other parts of the BSA (which deal with transactions rather than account statements). So I think we might have to wait for litigation to see how this might be interpreted. I assume it would not go to Tax Court, but to regular Federal Court since this is not a tax statute. I would guess that anyone who did not tick the Schedule B question about foreign accounts properly would have a hard time arguing reasonable cause.

    Would an accountant really be willing to attach a document attesting that he or she messed up in not asking about foreign accounts ? At the very least you’re admitting incompetence, at the very most leaving yourself open to litigation by clients.

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