FBAR Penalties IRSMedic: Parent & Parent LLP 144 S. Main St Wallingford, CT 06492 Phone: (203) 269-6699
How to avoid FBAR penalties FBAR penalties are not calculated on your income, but rather, your account value. And so the problem for many taxpayer who haven’t filed FBARs is that they could wind up with wildly disproportionate penalties. For instance, if you have an account that is worth $500,000, the IRS, for one year, can asses a $250,000 FBAR penalty — for just one year. And for two years, the FBAR penalties could be equal to the actual total value of the account –completely wiping out its value. mount of the account. Worse, the IRS is not limited to assessing FBAR penalties for just two years; the IRS could potentially assess FBAR penalties for 6 or more years. Putting taxpayers in a negative equity position. The truth is that FBAR penalties can be particularly devastating. So you need great advice on how to best deal with your unique situation. But did you know there is a way out of this jam?
How to lower FBAR penalties.
In order to lower FBAR penalties, you need to show the IRS one or more of the following:
• that you relied on the advice of a professional tax adviser who was informed of the existence of the foreign financial account; • that you had a legitimate purpose for establishing the unreported account. For instance, you opened the account because you are a dual citizen, or use the money to fund operational expenses overseas, like a rental property. • that you lacked of any intentional effort to conceal income or assets related to an unreported foreign account. So despite the non-filing of the FBAR, you took no action to hide the existence of the account. • that you don’t have an outstanding tax bill. Or whatever unreported income you have, you already amended and paid the outstanding taxes before applying for FBAR penalty abatement. What is the process for abating and avoiding penalties?
There are two ways: If the accounts had no unreported income, and an FBAR filing requirement, it is a matter of filing missing FBARs and arguing with the IRS why you should not be assessed the FBAR penalties for the reasons above. If you have unreported income you will likely need to submit a 2012 Offshore Voluntary Disclosure Initiative (2012 OVDI). If you have good reasons like those above, you would then subsequently opt-out of the standard penalty structure, to argue for lower penalties. Of course, we understand that this may sound confusing. And that is why we created our own exclusive 2012 OVDI awareness guide. In it we will run through the entire OVDI process, and explain to you why the IRS is doing this. We will discuss the other options available such as doing nothing or the dangers of a so-called “soft” disclosure.
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