U.S taxpayers with foreign bank or investment accounts that total in excess of $10,000 at any time during the year are required to file FinCEN Form 114 electronically by June 30 each year for the previous calendar year. Form 114 is “simply” a disclosure requirement with no tax due. However, stiff penalties are in place if taxpayers don’t comply. The penalty is $10,000 per account per year for non-willful failure to file.
There have been several variations of the voluntary compliance program for non-filers since 2009 with less tolerance as the years go by for failure to file due to ignorance of the law. Particularly as more non-filing cases are publicized.
Many taxpayers have utilized the voluntary compliance programs. On May 29, 2015, the IRS issued interim changes to the Internal Revenue Manual to increase consistency on penalty assessment for those with open cases in the program. The IRS has the burden of proof when determining that non-filing was willful. Willful non-filers face much harsher penalties than those listed above. The penalties can easily exceed the balances in the foreign accounts.
Title 31 establishes only maximum penalty amounts, leaving the IRS to determine the appropriate FBAR penalty amount based on the facts and circumstance of each case. The new procedures, along with checklists, were developed to ensure consistency and effectiveness in the administration of FBAR penalties.
Hopefully, the new guidance will increase consistency and uncertainty for non-compliant taxpayers. However, it is much easier to comply annually and avoid the uncertainty and costs. If the cumulative balances in all of your foreign bank and/or investment accounts exceed $10,000 at any time during 2014, please contact Sara Stubler or your MarksNelson tax advisor at (816)743-7700 to get your Form 114 filed by June 30, 2015.