You have to submit a report to the IRS if you have offshore financial accounts with an aggregate value in excess of $10,000 at any time during the calendar year. The deadline for filing the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) is June 30 every year. Failure to file can incur huge civil or criminal penalties on those accounts. Both the IRS and the Financial Crimes Enforcement Network (FinCEN) have authority on the FBAR program but the IRS now has the responsibility for performing the assessment and enforcement of FBAR penalties for non-compliance. The important thing is that you have a legal right to appeal against the IRS decisions if you feel the penalty has been arbitrarily assessed. In this article, we will explore some key points on the FBAR appeal process.
IRS Office of Appeals
First of all, it is not at all necessary to make any payments on FBAR penalties until the appeal process ends. Also, note that the statute of limitations is different for FBAR assessments and FBAR collections. The assessment of an FBAR penalty is conducted by a local tax examiner but FBAR penalty appeals are handled at the IRS Office of Appeals in a centralized location where there will be an FBAR Coordinator who will ensure that resolutions are consistent nationwide. Since it is a coordinated issue, a referral to the International Operations department of the IRS is required before the first conference can be held.
Assessing the Penalty – Two types
If the taxpayer disagrees with the assessment of the FBAR penalty, then he or she has to appeal within 45 days. This will be considered a pre-assessment appeal. Pre-assessed FBAR penalties are eligible for Fast Track Settlement (FTS) and also for Fast Track Mediation (FTM), but only if the Letter 3709 has not been issued to the taxpayer. So remember, there is no better time than now to appeal.
If there are fewer than 180 days remaining on the statute of limitations for the assessment, the IRS is allowed to assess FBAR penalties at the time your case is received by the appeals department. Does this mean that you can’t appeal anymore if the statute expiration date is approaching? Not at all; you can. In a scenario like this, you will be given post-assessment appeal rights. Post-assessment FBAR cases will be handled on expedited basis and need to be processed within 120 days of assignment. Fast Track Settlement (FTS) or Post Appeals Mediation (P.A.M.) rights are unavailable in post-assessment appeals cases.
You can file a complaint in either the District Court or the Court of Federal Claims to challenge the assessed penalty. Once you have gone through a process known as “exhausting your administrative remedies” you are eligible to file a lawsuit in court, disagreeing with the record upon which the IRS claim is based. The involvement of a tax lawyer familiar with the nuances of the FBAR procedures (such as “willful” and “non-willful” penalties) could prove to be beneficial at this point and could help you to win your FBAR penalty appeal.