IRS Special Agents – Who They Are and What to Do if They Contact You

IRS special agents have wide latitude to investigate tax-related and other financial crimes. Although these agents do not have the ability to prosecute taxpayers, they play a critical role in determining whether a specific case should be referred for criminal prosecution.

Given the above, if a special agent contacts you, it is an extremely serious matter. This article will answer some common questions about special agents, including who they are, what you should do if they contact you, and what can happen during an IRS criminal investigation.

What is an IRS Special Agent?

Special agents work within the Criminal Investigation (“CI”) Division. In this capacity, special agents make initial determinations of whether a taxpayer has committed a crime under the CI Division’s purview and whether your case should be referred for criminal prosecution.

To this end, special agents have various investigative tools at their disposal, including document requests and interviews with third parties, conducting surveillance, executing search warrants, subpoenaing bank records, and reviewing financial data.

What is the CI Division?

The CI Division is the Service’s criminal enforcement arm. The Division investigates potential criminal violations under the Internal Revenue Code, including:

• Falsification of corporate and/or individual tax returns
• Abusive tax schemes
• Tax return preparer fraud
• Employment tax enforcement
• International tax investigations
• Bankruptcy fraud

The CI Division also investigates other financial crimes under the Bank Secrecy Act and certain anti-laundering laws. This includes investigations into complex money laundering schemes and fraud against financial institutions.

How Are Criminal Investigations Initiated?

Criminal investigations are commonly initiated when a revenue agent suspects possible tax fraud during an audit or collections effort. The CI Division can also initiate an investigation based on information provided by the public or an ongoing investigation conducted by another federal agency.

When special agents receive this information, they will first conduct a “preliminary investigation” of the information. The agent’s front-line supervisor and head of the office will ultimately need to approve or decline to move forward with the case. The approval from these levels of CI management signifies that there is sufficient basis for a criminal investigation.

The special agent will open a “subject criminal investigation if the case is approved.” The special agent will use the investigative tools mentioned above to establish whether tax fraud or another financial crime has occurred during this stage. Based on this information, the agent and their supervisor will determine whether the evidence supports the recommendation for prosecution. If the answer is “yes,” the agent will compile a written report, which must also be reviewed and signed off by various levels of CI management.

In the event CI management signs off on the written report, the Division will forward the recommendation for prosecution to the U.S. Department of Justice (DOJ), if the crime is tax-related and the applicable U.S. Attorney's Office for all other crimes.

Ultimately, the takeaway is that special agents are conducting investigations in the background, often unbeknownst to the taxpayer in question (although they may get a sense based on visits to the taxpayer or document requests to third parties). Thus, by the time the DOJ or U.S. Attorney’s Office charges you (if they do in fact decide to), the special agent has obtained a good portion of evidence against you.

How Will a Special Agent Make Contact with You?

Special agents can contact you in a variety of ways. They can make an unexpected and unscheduled visit (even to your house) to interview you or make requests for certain documents from you.

Special agents can conduct searches of your home, office, or other premises with a warrant and make arrests in more extreme cases.

What if a Special Agent contacts me?

If special agents contact you, you should (i) tell them that you do not wish to talk to them without an attorney present and then (ii) immediately retain an attorney to represent you in all future communications. This is because the agent can use any information that you provide to support a criminal prosecution recommendation to the DOJ or the applicable Attorneys’ Office.

Indeed, the Service’s internal operating manual instructs special agents to refrain from interviewing you if:

1. You indicate that you do not want to be interviewed;
2. You tell the agents that you do not want to answer any more questions at any stage of the interview; or
3. You request an attorney prior to or during the interview.

Of course, these safeguards do not apply if you voluntarily provide information. Informing the agent that you do not wish to be interviewed without an attorney present can minimize the chance that something you say to the agents will be used as a basis for criminal prosecution.

Will They Read My Rights?

Based on the IRS internal operating manual, special agents are supposed to warn you in “clear and unequivocal” terms of your right to remain silent, that any statements made can be used as evidence against you, and your rights to request the presence of an attorney.

Even if special agents do not read you your rights, you should refrain from speaking with them and request the presence of an attorney who will handle all future communications and requests from them.

What if I Know I’m Innocent, What Should I Do? 

Even if you know that you are innocent, you should still retain an attorney to represent you in all dealings with special agents. Any information you provide during a criminal investigation can later be used by the agent (even if wrongly) as a basis for a criminal prosecution recommendation to the DOJ or the U.S. Attorney’s Office (as applicable).

An experienced criminal tax attorney can help you navigate the IRS criminal investigation process and reduce the chances that you will say something or provide information to the agent that wrongly incriminates you.

What Can Happen If I Did Commit a Tax Crime?

If you did commit a tax crime, the special agent could refer your case to the DOJ or U.S. Attorney’s Office for criminal prosecution if that agent, together with others at the CI division, determines that the evidence supports such a prosecution.

The special agent’s “preliminary investigation” and “subject criminal investigation” are subject to review and approval by various levels of CI Division management. Therefore, if an agent and others in the CI Division do not believe that the collected evidence warrants a criminal prosecution, they can terminate the criminal investigation against you.

What If I Am Just a Witness to a Tax Crime?

Even if you are a witness to a tax crime, you are required to comply with every legal and reasonable request by the special agent or the CI Division, including requests for testimony, documents, or other information. A witness can refuse requests on the basis that providing such information would tend to incriminate them.

Special agents have summons authority to compel witness testimony or the production of specified documents if the witness fails to comply with the agent’s request. This authority even extends to requests where a witness refuses to provide the information on the basis that it will tend to incriminate them.

In light of the above, witnesses should also retain and consult with an experienced criminal tax attorney to prevent themselves from being implicated in the tax crime later on during the criminal investigation.

Getting Help Help if You've Been Contacted by an IRS Special Agent

If you are involved with som resort of IRS criminal investigation, it is in your best interest to retain a tax professional that can assist. At TaxCure, we have a large network of tax professionals from around the country with a variety of backgrounds. The network includes licensed attorneys who specialize in criminal tax matters. You can start your search here for tax professionals with a law license that have experience with IRS special agents.

Guide to IRS Information Document Request (IDR) 

What to Expect if You Get Form 4564 During an Audit

If the IRS wants information before or during an audit, the agency may send you Form 4564 (Information Document Request). If you receive an IDR, you should answer the request within the prescribed timeline, but you also need to be careful in framing your responses. The IRS may use this information to adjust your tax return, which could lead to a tax liability.

To that end, this article will first provide an overview of what an IDR is. We will also discuss how to respond to an IDR, the potential consequences for failing to respond to an IDR, and who can help you respond to such requests.

Key takeaways 

• Form 4564 – Information Document Request
• IDRs – used to request information during audits.
• How to respond – respond honestly and promptly.
• What if you don't respond – the auditor may adjust the return without your input or summon the info they want from you or third parties.
• Why get help – to ensure the requests are legitimate, to protect your rights, and to minimize the risk of facing an unwanted tax bill as much as possible.

What is an IDR Request?

An IDR, information document request, is the primary tool for the IRS to obtain information from a taxpayer under audit. The IRS will typically issue such information requests on Form 4564.

Revenue agents use IDRs to understand taxpayer positions better and develop factual records. In other words, auditors request information to back up the information reported on your tax return – they may request a wide variety of documents, which vary significantly based on the scope and type of audit. 

Generally, the IDR is not the first notice you receive. You'll receive an audit letter that kicks off the process, and then, the auditor will start asking for more details.

IDR Request – Analysis From a Former IRS Revenue Agent

Check out this video to see what a former IRS revenue agent has to say about IRS information document requests. Here, Herb Cantor explains what to expect, the types of documents the auditor is likely to request, and why you may get multiple IDRs during the course of an audit.

You can find Herb Cantor's profile, an IRS audit specialist, here. If you're under audit, hiring a former IRS employee can be extremely helpful – they know exactly how the IRS audit process works and how to best defend clients so that they don't face an unexpected tax liability. 

How to Respond to an IDR

You need to cooperate with the IRS, but on the other hand, you don't want to provide information that you're not legally required to provide. An audit attorney can be critical for helping you figure out the best way to respond. 

Whether you're working with a pro or navigating the audit process on your own, keep these tips in mind as you respond to Form 4564.

• Ask follow-up questions if you don't understand the requests – IDRs may ask for all kinds of very specific accounting records – for example, trial balances, balance sheets, or journal reports. If you're unsure of what anything means, ask the auditor or reach out to a tax professional.
• Provide honest responses – You should be honest and candid in your responses. Ideally, you want to maintain a positive working relationship with the IRS audit team to prevent an examination from escalating into something more.
• Respond on time – If you miss the deadline, the auditor may move forward without your response. That can lead to an unwanted tax liability and audit penalties. You can request an extension, but there's no guarantee that the IRS will approve your request.
• Draft responses carefully – Remember, the IRS may use your answers to adjust your tax return. For example, if you've claimed a deduction and they ask for proof, but they don't agree with the information you provide, they may remove the deduction from your return.
• Make sure the requested information is within the scope of the audit – You and your tax attorney/tax professional should vet whether the requests are protected by attorney-client privilege and/or whether they are relevant to the scope of the examination. If not, you may have the legal right to deny the request. However, this isn't a decision that you should make on your own. Additionally, the IRS faces certain limitations on what type of information they can request in an IDR. 

What to Expect After You Respond to an IDR

When you respond to an IDR, the auditor will review the information you provided. If it supports what you claimed on your tax return, they'll accept that part of the return as filed. If not, they'll either adjust the return or reach out to you for additional information. 

Often, especially for complex audits, the auditor may send several rounds of Form 4564. That's just because their initial questions often lead to follow-up audits. If it's a relatively simple audit, you may only get one or two IDRs.

Audit conclusion

Audits can conclude in a few different ways:

• No change – the auditor agrees with your return as filed; they don't make any changes, and you don't owe any additional tax. 
• Change and you agree – the auditor makes changes to your return; you agree with the changes, so you pay the tax liability in full or request payments.
• Change and you don't agree – the auditor makes changes to your return; you don't agree with the changes, so you file an appeal. 

Notice of Proposed Adjustment (NOPA)

After all appeals have been completed or you indicate that you agree with the audit, the IRS will send a Notice of Proposed Adjustment (Form 5701). At that point, you have additional appeal rights if you disagree – but to appeal, you must meet strict deadlines and follow certain procedures, so again, you should strongly consider working with a professional.

What Happens if You Don’t Respond to an IDR?

When the IRS issues an IDR, Form 4564 should have a date by which you need to respond. If you fail to respond to an IDR, the IRS has the statutory power to issue a summons to compel your testimony or the production of documents requested in the IDR. If you do not voluntarily comply with the summons, the Service can file a lawsuit in the applicable U.S. District Court to enforce the summons.

The IRS can also summon information from third parties. Say, for example, that you refuse to provide information on your sales report – the agency may summon those details from your payment processing company. They may also send summons to banks, clients, shareholders, or any else related to you or your business.

When can the IRS issue a summons?

The Service’s summons authority is not unlimited, as with other IRS powers. Generally, revenue agents need to abide by the following principles outlined by the U.S. Supreme Court in United States v. Powell, which have also been incorporated in the Service’s Internal Revenue Manuals:

• The investigation must have a legitimate purpose.
• The inquiry must be relevant to the purpose.
• The information sought must not already be within the Service's possession; and
• All administrative steps required by the Code have been followed.

Still, in light of the IRS’s summons authority, you should make every effort to respond to an IDR (unless you believe the information requested is protected by the attorney-client privilege or not relevant to the scope of the examination). 

Who Can Help with this Type of Request?

If you receive an IDR from the Service, you should work with a tax attorney or a tax practitioner well-versed in IRS examinations and procedures to help you respond to Form 4564.

Your tax professional can help you with an IDR in a few important respects. 

• Audit representation – First, IRS audits can be a very complex process. Your tax professional can explain and help guide you through an examination, including what to expect beyond the IDR requests.
• Careful responses – Perhaps more importantly, your tax advisor can help you get a sense of the focus and direction of the audit and appropriately frame your responses within this context, including any applicable defenses. 
• Objections – Your tax advisor can help you raise objections to any requests protected by the attorney-client privilege and/or not relevant to the scope of the examination.
• Minimizing tax liability – As already mentioned above, revenue agents can use the information from IDRs as the basis to adjust your tax return. Your tax pro works on your behalf to minimize that risk and keep your tax liability as low as possible.

The Takeaway

As described above, an IDR is an essential tool for the IRS during an audit. Revenue agents primarily use IDRs to develop an audited taxpayer’s factual record and, if applicable, to build a case for issuing a NOPA. Additionally, while a taxpayer is not required to respond to an IDR initially, the Service has the authority to issue a summons to force you to comply with its request potentially.

FAQs about IDRS

Why does the IRS have the right to issue IDRs?

Internal Revenue Code Section 7601 gives the IRS the legal right to request information from taxpayers that relates to their tax situations. If you feel like a request is out of scope, consult with a tax professional.

Why did I receive Form 4564 IDR?

You received this form because the IRS wants information to back up what was reported on your return. That's because you were selected for an audit due to discrepancies on your return, red flags, or just randomly.

What's on Form 4564?

The form lists the taxpayer, the subject, and the dates of any previous requests. Then, it has a large blank space for the auditor to list the documents they want. Finally, the bottom of the form notes the due date, the name and title of the requester, their IRS employee number, office location, and phone number.

Which type of documents does the IDR request?

The IDR may request anything related to the audit – for example, receipts to back up expenses, balance sheets, sales records, corporate meeting minutes, mileage logs, etc.

Should I provide the documents in person or mail them?

The bottom of the form notes if you should bring the documents to the next appointment or mail them to the IRS. Ask your auditor if you're unsure.

Get Help With Audit Requests

You should work closely with a tax attorney or practitioner experienced in IRS audit matters to help you respond to an IDR within the prescribed time frame. A tax attorney or practitioner can demystify the examination process for you and help you develop strategic responses to the IDR. At TaxCure, you can find local tax professionals that can help with IDR requests and tax audits. You can start your search for a tax audit professional here.

Delinquent FBAR: How to Resolve Unfiled Foreign Bank Account Reports (FBAR)

There are three different ways to take care of delinquent FBAR forms, and the right option depends on your situation. 

1. File FBAR as usual and note why you're filing late.
2. Use the IRS's streamlined procedures to file delinquent FBAR.
3. File the FBAR through the IRS Criminal Investigation Voluntary Disclosure Practice.

To minimize penalties and other repercussions as much as possible, you need to choose the optimal option. Keep reading to determine which delinquent FBAR filing strategy is right for your situation. 

FBAR Delinquent Submission Procedures

If you simply overlooked your FBAR reporting requirement but filed your tax returns correctly, you can just file FBAR online. When filing, note the reason why you didn't file on time. If you cannot file online, contact the Financial Crimes Enforcement Network at 1-800-949-2732 or 1-703-905-3975.

As long as you reported any income from these foreign accounts correctly on your income tax return, that's all you need to do. There aren't any penalties for taxpayers who qualify to submit their delinquent FBAR in this manner. 

You can only use this option if you're proactive about taking care of your delinquent FBAR. If the IRS has already contacted you about the unfiled FBAR, you cannot catch up using this option. You cannot use this option if you're currently under criminal or civil investigation from the IRS, even if the investigation isn't focused on your foreign accounts. 

FBAR Late Filing Explanation

If you're filing delinquent FBAR reports using BSA online, you need to explain why you're filing late. On the first page of the FBAR, you should see a drop-down box with a list of the most common reasons for late filing. You can choose from one of the following:

1. Forgot to file FBAR.
2. Didn't know that you had to file FBAR.
3. Didn't realize your foreign account balances were over the reporting threshold.
4. Didn't know that your account was considered a foreign account.
5. Didn't have your account statement in time to file on time.
6. Lost your account statement and just got the replacement.
7. Missing account information.
8. Couldn't get your spouse's signature on time.
9. Unable to file the FBAR online when it was due.

If you don't see your reason for filing a late FBAR on the list, choose option "Z: other" and then write in your FBAR late filing explanation. You only have 750 characters, so be precise. 750 characters is only about 135 words.

You should also choose "other" if you file late because an earlier FinCEN filing waiver applied to you. In this case, just note the waiver by number in the text box. 

FBAR Late Filing Reasonable Cause

The IRS does not audit every late FBAR submission, but if the IRS audits your FBAR and doesn't agree with your reason for filing late, the agency may require you to use a different submission process. Or the IRS may assess penalties on your account. 

So, what are the reasonable causes for filing an FBAR late? They include situations where you didn't know you needed to file, weren't aware that your account was classified as a foreign account, or didn't have the right details from your foreign bank. 

Some of these reasons are becoming less believable over time. For instance, when people paper filed or used early versions of tax prep software, they could easily file their tax returns without being aware of the FBAR requirement. Now, most tax prep software asks if you have assets in foreign bank accounts. This type of technology obliterates lack of knowledge as a reasonable cause for not filing. 

Streamlined Delinquent FBAR Reporting

The IRS's streamlined FBAR filing process is for people who overlooked their FBAR requirement and missed another filing obligation. For instance, if you didn't file your income tax return or failed to report income from your foreign accounts, you may qualify to use this program. 

If you live in the United States, you should use the Streamlined Domestic Offshore Procedures (SDOP). Use the Streamlined Foreign Offshore Procedures (SFOP) if you live in another country. Here's an overview of the steps.

How to File FBAR Under the Streamlined Procedures

The exact process can vary based on your situation. But typically, you need to work through these steps.

1. File or amend your returns.

Typically, you need to file or amend the last three years of tax returns — depending on your situation, and you may need to amend returns that go further back. For instance, if you were compliant the last three years but forgot about FBAR four, five, and six years ago, you may need to amend your annual tax returns from those years. 

2. Add additional forms related to foreign income.

You may need to file some of the following forms when amending your tax returns. The forms you need to file vary based on the type of foreign accounts and income you have.

• Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts)
• Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner)
• Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations)
• Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business )
• Form 8938 (Statement of Specified Foreign Financial Assets)
• Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation)
• Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund )

3. Note that you're using the streamlined procedures.

When you send in your amended returns, write "Streamlined Domestic Offshore" or "Streamlined Foreign Offshore" on the top of your amended returns. Writing this ensures they get processed correctly.

4. Pay any tax owed.

Your new tax returns will lead to a higher tax liability. This is due to the unreported foreign income. You may also face failure-to-file penalties related to the unreported income. You must pay the delinquent tax liability to participate in the streamlined program. 

5. File your delinquent FBAR returns.

You also need to file the last six years of FBAR returns using FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). You must file this form online on the BSA -Efiling System. 

Normally, you only have to file Form 114 if the aggregate balance on your foreign accounts exceeds $10,000 during the tax year. However, if you're using the streamlined process, you need to file all six years regardless of the balances in your account for each year. 

6. Fill Out Form 114a If Needed

If someone else (including your spouse) is filing the FBAR on your behalf, you need to fill out Form 114a (Record of Authorization to Electronically File FBARs ).

7. File Form 14654 or 14653

Finally, you tie everything together with Form 14654 (Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures) or Form 14653 (Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures). You can download these forms from the IRS's website.

Penalties When You Use the Streamlined Procedures

Taxpayers who use the FBAR streamlined procedures must pay a penalty of 5% of the value of their unreported accounts. Some accounts, such as certain Canadian retirement accounts, may be exempt from this fee. 

To ensure you calculate the correct fee and amend your tax returns correctly, you may want to get help from a tax professional. 

IRS Criminal Investigation Voluntary Disclosure Practice

If you willfully failed to file an FBAR, you may need to use the IRS Criminal Investigation Voluntary Disclosure Practice. This program allows people who have committed tax-related crimes to come forward voluntarily. Using this program doesn't eliminate your criminal exposure, but the IRS looks more favorably on taxpayers who came forward on their own when reviewing cases. 

To apply for this program, submit Form 14457 (Voluntary Disclosure Practice Preclearance Request and Application). Once the IRS gives you preclearance confirmation, fill out Part II of the form within 45 days. If you're approved to participate, the IRS Criminal Investigation will send you a Preliminary Acceptance Letter.

The IRS will assign an examiner to your case, and you will work directly with them to resolve the issue. You may want to hire a tax lawyer to help with this process. 

What to Do After You File Delinquent FBAR

After you file the delinquent FBAR, keep a copy of your paperwork for your records. If you file online, you may not even get a response. The IRS treats these returns the same as any other returns it gets. 

When you use the streamlined procedures, you generally will not get a response letting you know that the case has been closed, but you should receive a processing notice for the amended return that you filed. The Voluntary Disclosure Practice includes a lot of back and forth with the IRS, and you will know when your case is resolved. 

Get Help With Delinquent FBAR

You don't have to navigate this process on your own. There are tax attorneys and other tax professionals with lots of experience with delinquent FBAR reports. With TaxCure, you can search for a pro based in your area — contact a tax pro for help today.

Post reviewed by Sean O'Connor a tax attorney from Connecticut and Edward Parsons a CPA based in Florida.

What Happens If You Forget to File FBAR?

Worst case scenario — you can be subject to significant penalties and even criminal charges for forgetting to file FBAR. But in many cases, you can file your late FBAR forms and get back into compliance without a lot of issues. The situation depends on why you forgot to file FBAR and whether or not you missed other tax reporting obligations.

Here's a look at what to expect if you forgot to file FBAR. 

How Does the IRS Know That You Forgot to File FBAR?

In the past, FBAR compliance was extremely low. Only about 20% or fewer of the people who were supposed to file FBAR were doing so. Many of these people were never caught, and because of that, the IRS labeled not filing an FBAR as one of its dirty dozen tax scams. 

The government passed The Foreign Account Tax Compliance Act (FACTA) to increase compliance with foreign bank account reporting requirements. FACTA requires all foreign banks with U.S. persons as clients to report those accounts to the IRS. Once your bank sends a report to the IRS, the agency will know that you didn't file your FBAR. 

In some cases, the IRS also finds people with unfiled FBAR due to foreign income they have reported on their tax returns. Or, the agency may unearth overlooked FBAR forms when auditing a taxpayer. 

How the IRS Contacts People About Unfiled FBAR

Once the IRS realizes that you have forgotten to file your FBAR, the agency will send you Letter 4265 (FBAR Appointment Letter). Then, the IRS will request information about your foreign accounts and have you schedule a time to talk with an examiner on the phone. 

A lot hinges on your meeting with the examiner. During this conversation, you get to explain why you forgot to file the FBAR. 

What to Expect After Your FBAR Examination

If the examiner thinks you have reasonable cause for not filing, they may just let you take care of the delinquent FBARs without assessing a penalty. In that case, the IRS will send you Letter 3800 (Warning for Report of Foreign Bank and Financial Accounts (FBAR) Apparent Violations). 

You will only get this letter if the IRS is not assessing any FBAR penalties against you. In some cases, you may incur penalties for some years but not for others.

If the examiner decides to assess non-willful penalties on your account, the IRS may send you Letter 3708 (Notice and Demand for Payment of FBAR Penalty). You may also receive Notice 1330 (Information on Making FBAR Penalty Payment by Check). Note that the IRS sends several different letters and notices. These may not be the exact letters that you receive. 

As of 2022, the maximum penalty for non-willful violation is $14,489. This amount is indexed to inflation and increases every year, but remember, this is the maximum amount. The examiner can assess lower penalties at their discretion. 

Willful penalties are a maximum of $144,886 or 50% of the balances in your foreign accounts. If the examiner decides to assess willful penalties, the FBAR Counsel will review your case. You have the right to appeal, but you should brace yourself for a battle. Cases involving willful FBAR penalties often go through several appeals in the court system. 

What Should You Do If You Forgot to File FBAR & are Past Due?

The best thing to do if you forgot to file FBAR is to take care of the issue before the IRS contacts you. Once the IRS contacts you, your options become more limited. You also increase your risk of facing penalties. 

The exact steps you should take vary. If you forgot to file FBAR based on your situation, here is what you should do.

You're Less Than Six Months Past Due on FBAR

The FBAR is due April 15th, the same day as your federal income tax return. But the IRS gives taxpayers an automatic six-month extension for the FBAR. If you forgot to file the FBAR for last year, there might still be time to file without being late. 

You Forgot to File FBAR Due to a Natural Disaster

You may also have extra time if you've been affected by a natural disaster. The Financial Crimes Enforcement Network (FinCen) posts information about FBAR deadline extensions due to natural disasters on its website. 

You Filed Your Taxes Correctly But Forgot FBAR

The FBAR requirement is just a reporting requirement. When you file an FBAR, you just note the value of your foreign bank accounts. You don't share any information about earnings on these accounts. 

If your foreign bank accounts earned any income such as interest income, you should have reported that on your income tax return. If you correctly reported everything on your income tax return and simply forgot about your FBAR, you can usually take care of the issue by filing the FBAR online. 

Simply file the FBAR online as usual, but note the reason that you're filing late. This is the easiest way to take care of an overlooked FBAR requirement.

You cannot use this option if the IRS contacted you about the missing FBAR or if you're under criminal investigation. Generally, if you qualify to take this route, the government will not assess penalties.

You Also Forgot to Report Income From Your Foreign Bank Accounts

If you forgot to file the FBAR and also forgot to report income from your foreign accounts on your tax return, you might be able to take care of the FBAR through the streamlined filing option.
The IRS refers to these programs as Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. 

To use the streamlined program, you must meet the following requirements:

• You have a Social Security Number or a Tax Identification Number. 
• Your failure to file the FBAR was not willful. It may have been due to negligence, a mistake, or any good faith misunderstanding of the rules. 
• You are not under an IRS civil examination. Even if the IRS is investigating you for an unrelated issue to foreign accounts, you cannot use the streamlined program. 
• You are not under criminal investigation from the IRS. 

The rules for both streamlined options are about the same. You need to amend the last three years of tax returns to report income from your foreign accounts, and you also need to pay any additional tax due. Then, you need to file the FBAR for each of the years in question. 

The only difference is that people living in the United States should file Form 14654 (Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures). People who live abroad should file Form 14653 (Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures). 

These forms certify that you've completed the streamlined delinquent FBAR process steps and that your failure to file on time was not willful. You can find them on the forms and publications page of the IRS's website. 

You Willfully Forgot to File the FBAR

Typically, if someone acts willfully, they didn't forget to file their FBAR. They deliberately (willfully) choose to ignore the reporting requirement. However, willful doesn't just apply to people who purposefully and knowingly ignored the reporting requirement. 

Willfulness can also include cases where you purposefully avoided learning about a tax requirement. This is called willful blindness. Reckless behavior can also be considered willfulness. For instance, if you sign your return and answer the question on Schedule B about the foreign bank account reporting requirement but still don't file an FBAR, you may have acted recklessly. 

Suppose you believe you committed a crime or have criminal exposure due to willful failure to file the FBAR. In that case, you may need to file your FBAR through the IRS Criminal Investigation Voluntary Disclosure Practice. 

Because the penalties can be severe in these situations, you should work with a tax professional. They can advise you on the best way to get back into compliance. 

This program does not necessarily prevent you from facing criminal prosecution. But when you make a voluntary disclosure, the IRS is often less likely to recommend criminal charges. 

Get Help If You Forgot to File FBAR

If you're less than six months late or meet the criteria to file delinquent FBAR without penalties, just file online. You can handle the FBAR independently or contact a tax pro if desired.

If you believe that you need to use the streamlined procedures or are worried about criminal charges, you can also take care of the process on your own. But to be on the safe side, you should work with a tax professional. 

They can help you meet all of the requirements and choose the best option for your situation. To learn more, contact a local tax professional today. Using TaxCure, you can search for a CPA, enrolled agent, or tax lawyer experienced with FBAR and based in your area.

Post reviewed by Sean O'Connor a tax attorney from Connecticut and Edward Parsons a CPA based in Florida.

FBAR Penalties for Late Filing, Failure to File & More

The IRS Can Impose Severe Penalties on Taxpayers Who Fail to File FBAR

The penalties for not filing FinCEN 114 (Report of Foreign Bank and Financial Accounts FBAR) are some of the IRS's highest civil penalties. In extreme cases, these penalties can be millions of dollars. 

Don't be scared — you don't automatically face FBAR penalties if you forget to file. In a lot of cases, you can catch up on your filing requirement voluntarily without incurring penalties. 

However, the penalties can be extreme if the IRS decides that you have been willfully incompliant with this reporting obligation. To protect yourself, you need to deal with unfiled FBAR forms carefully. Here's an overview of FBAR penalties.

How Much Are FBAR Penalties?

As of 2022, the maximum penalty for a non-willful FBAR violation is $14,489. Willful FBAR violations can incur penalties of the higher of $144,886 or 50% of the balance in your foreign account. These numbers are indexed to inflation, and they increase every year. 

For example, say you have $50,000 in your foreign bank accounts, and the IRS determines that you have committed a willful FBAR violation. Your penalty can be $144,886. If you have $3 million in your foreign accounts, the FBAR willful violation penalty can be up to $1.5 million. 

FBAR Penalties for Businesses Violations of the Bank Secrecy Act

The IRS can also assess negligent violation penalties to financial institutions and non-financial trades or businesses that do not follow FBAR reporting and recordkeeping requirements. This is a civil penalty of $1,253 (as of 2022) that applies to all violations of the Bank Secrecy Act. 

Businesses and financial institutions with a pattern of negligence may face civil penalties of up to $97,529 (as of 2022). These FBAR penalties do not apply to individuals.

Legal Codes for FBAR Civil Penalties

As indicated above, there are four civil penalties related to FBAR violations. Here are the penalties and the U.S. Code that outlines the specific laws surrounding each of these penalties. 

• Negligent activity 31 USC 5321(a)(6)(A).
• Pattern of negligent activity 31 USC 5321(a)(6)(B).
• Penalty for non-willful violation 31 USC 5321(a)(5)(A) and (B).
• Penalty for willful violations 31 USC 5321(a)(5)(C). 

Willful Vs. Non-Willful FBAR Penalties

All FBAR penalties can be significant. A willful penalty can be ten times higher (or even more) than a non-willful penalty. However, in some cases, non-willful penalties can end up being higher than willful penalties because they can be assessed per account rather than based on the account balance.  

What's the difference between willful and non-willful? In short, non-willful penalties typically apply when you didn't know about the filing requirements. Willful penalties apply when you knowingly chose not to file your FBAR. 

But this isn't the only interpretation of the concept of willfulness. Willfulness can also include reckless disregard and willful blindness. 

FBAR Willful Reckless Disregard

Here is an example of willful recklessness with the FBAR. Say that you complete your return, and you tick a box on Schedule B saying that you do not have any foreign assets, and another box saying that you don't have to file an FBAR. 

When the IRS contacts you about the unfiled FBAR, you claim that you didn't know about the reporting requirement and didn't notice which boxes you ticked on your Schedule B. This may be considered reckless behavior. When you sign your tax return under penalty of perjury, you are declaring that the information submitted is correct. 

Ticking boxes without reading questions or reporting incorrect information is reckless. By extension, the IRS can assess willful penalties in these situations. 

FBAR Willful Blindness

Willful blindness occurs in cases where you didn't know about the FBAR filing requirement, and you went out of your way to maintain your ignorance. In other words, you should have known about the FBAR reporting requirement, but you didn't. 

Again, you don't necessarily need intent for the IRS to assess a willful FBAR penalty. The government can assess your willfulness based on recklessness and blindness. 

Civil Willfullness Vs. Criminal Willfulness

The above penalties are all civil penalties. If the IRS assesses a civil penalty, you just pay the penalty. You don't worry about criminal charges or jail time.

However, in rare cases, the government can assess willful criminal penalties on taxpayers who don't file FBAR. Generally, taxpayers only face criminal FBAR penalties when they are also being accused of other financial crimes such as money laundering and tax evasion. 

Criminal FBAR Penalties

Under U.S. Code 31 U.S.C. §5322, you can face criminal FBAR penalties of up to $500,000 and a prison term of up to 10 years. These penalties can apply if you willfully failed to file FBAR or filed a false FBAR. Again, however, criminal penalties generally only apply in cases where other crimes are involved. 

What Is the Maximum FBAR Penalty?

There is no cap on FBAR penalties, and this rule has been held up through several Federal circuit court rulings. To get a sense of how high FBAR penalties can be, look at the case of United States v. Kahn. 

In 2009, Mr. Kahn willfully failed to report the funds in his foreign bank accounts. He had just over $8.5 million in two Swiss bank accounts. Because it was a willful failure to file the FBAR, the government assessed a penalty of $4.26 million which was equal to 50% of his aggregate account balances.

The lawyers for his estate argued that a 1987 Treasury Department Regulation limited the penalty for willful FBAR reporting violations to $100,000. The government claimed that a 2004 statuary amendment superseded the regulation. The courts sided with the government in this case, just as they had in several similar Federal District Court cases. 

Are FBAR Penalties Per Form or Per Account

There is some discrepancy about whether non-willful FBAR penalties apply per form or per account. In early 2021, the U.S. Court of Appeals for the Ninth Circuit ruled that the non-willful FBAR penalties should be applied per FBAR form, not per account in the case of the United States v. Boyd. 

The defendant had 13 unreported accounts, and she came forward voluntarily. Initially, the IRS attempted to assess a non-willful FBAR violation penalty on each of the 13 accounts. Her lawyers, however, claimed that she should only have to pay a single non-willful penalty for her single unfiled FBAR. In this case, the courts agreed. 

But just a few months later, in November 2021, the U.S. Court of Appeals for the Fifth Circuit ruled the opposite way in the United States v. Bittner. In this case, the courts determined that the non-willful penalty should be applied per account rather than per form. At the time of writing, this case is in front of the Supreme Court, and it is still undecided. 

If you have ten foreign accounts and you forget to file an FBAR, the maximum non-willful penalty could be $144,890 if calculated per account. If the penalty applies per form, the penalty would only be $14,489. 

Neither penalty is ideal, but the smaller one is preferable. Because so much is at stake with FBAR penalties, you should work with a tax professional with experience with this specific tax concern. 

Why Are FBAR Penalties So Severe?

Arguably, FBAR penalties have little to nothing to do with tax. Even if you report and pay tax on the income from your foreign accounts, you may still face a penalty if you don't file your FBAR. 

The government uses FBAR penalties to scare taxpayers into compliance and reduce the risk of money laundering and other financial crimes. That is why the Financial Crimes Enforcement Network handles these returns instead of directly by the IRS. 

How Does the IRS Calculate FBAR Penalties?

Once the IRS realizes that you have unfiled FBAR, the agency will assign an examiner to your case. The examiner will attempt to get more details about your foreign accounts and learn why you didn't file the FBAR. 

You need to navigate this process carefully. The FBAR penalties quoted above are maximums — the examiner can also decide to assess no penalties or smaller penalties on your account. 

The examiner is also the person who makes the initial determination of whether your behavior was willful or non-willful. One examiner may consider the situation aggravated negligence but still non-willful. Another examiner may claim that the same set of facts constitutes reckless disregard and thus warrants a non-willful FBAR penalty. 

Luckily, this decision isn't final. The FBAR Counsel must approve all non-willful FBAR penalties. And you have the right to appeal the assessment and even take the issue to litigation if needed. 

How to Reduce the Risk of FBAR Penalties?

The best way to avoid FBAR penalties is to file your FinCEN 114 accurately and on time. If you realize that you missed filing an FBAR, be proactive. It is always better to contact the IRS before the agency contacts you. 

If the IRS contacts you about unfiled FBAR, reply promptly and provide the requested information. Even in this case, you may still be able to avoid penalties if the IRS believes that you had a reasonable cause for missing the filing requirement. 

The FBAR rules can be complicated, and penalties for lack of compliance can be extremely severe. You may want to contact a tax professional to help with this issue. 

History of FBAR Penalties

In 1970, Congress passed the Bank Secrecy Act (BSA), which contained a requirement for individuals to report their foreign bank accounts. In 1972, the Secretary of the Treasury created the FBAR form so that individuals could report their foreign bank accounts when they filed their income tax returns. 

These rules were designed to reduce the risk of money laundering and other financial crimes. As these issues became a more significant problem, Congress passed the Money Laundering Control Act of 1986, and this act included the first penalty for willful failure to file FBAR. 

At that point, the FBAR penalty was the greater of $25,000 or the amount in the bank accounts. But the penalty was capped at $100,000. 

After 9/11, Congress decided to increase the willful FBAR penalty again. In 2004, the government passed a statute that increased the penalty for willful failure to file FBAR to the greater of $100,000 or 50% of the aggregate balances in the foreign bank accounts. The $100,000 is indexed for inflation, so it typically increases every year. 

FBAR Penalties Waivers

There are situations where you can file late FBAR without incurring penalties. In other cases, an examiner may look at your case's circumstances and decide to issue you a warning without any penalties. If you've been assessed FBAR penalties, you can apply to have them waived, appeal the case, or pursue the issue through litigation. 

FBAR Penalty Mitigation Guidelines

The IRS generally mitigates the penalties in cases that don't involve tax fraud or criminal charges. Mitigation affects both willful and non-willful violations. 

If the maximum aggregate balance of all foreign accounts related to the FBAR violation is less than $50,000 at any time during the calendar year, the penalty is just $500 per non-willful violation per filer per year, and non-willful penalties cannot exceed $5,000 for the year. For willful violations, the mitigated penalty is the greater of $1,000 per year or 5% of the maximum balance of the accounts. 

For aggregate account balances over $50,000 and up to $250,000, the penalty is $5,000 per non-willful violation. The mitigated penalty for willful violations is the greater of $5,000 or 10% of the maximum aggregate account balance. 

If your account balances exceed $250,000, the mitigated non-willful penalty is the statutory maximum per violation. For willful violations related to accounts with an aggregate balance of over $250,000 but less than $1 million, the penalty is the greater of 10% of the maximum balance of each account during the year or 50% of the account balance on the violation date. 

For willful violations on accounts with aggregate balances over $1 million, the penalty is the greater of 50% of the account balance on the violation date or the maximum statutory penalty.

Get Help With FBAR Penalties

If you're dealing with FBAR penalties, contact a tax professional today. Using the TaxCure directory, you can search for tax lawyers, CPAs, and enrolled agents who have experience helping taxpayers with this specific issue. 

Post reviewed by Sean O'Connor a tax attorney from Connecticut and Edward Parsons a CPA based in Florida.

FBAR Reporting Requirements: Everything You Need to Know for Compliance

If you're confused about FBAR reporting requirements, you are not alone. Many people are unaware of these rules, and in recent years, the IRS has started sending letters and assessing penalties to get taxpayers back into compliance. 

Before this compliance push, only around 20% of taxpayers were compliant with FBAR requirements. Now, the penalties are too high to risk non-compliance. Here's an overview of the requirements. 

Do I Need to File FBAR?

Whether you live in the United States or any other country, you need to file an FBAR if you're a U.S. tax resident with foreign bank accounts with a value above the reporting threshold. What does this mean? Let's break down these concepts.

A U.S. tax resident includes the following:

• All U.S. citizens, regardless of where they live.
• Resident aliens — This refers to foreign citizens who are residents of the United States. For instance, if you're a citizen of another country but live in the United States and have a green card, you're a resident alien.
• Domestic trusts, domestic estates, and other domestic entities. 

If you fall into one of the above categories, you should file an FBAR if you have foreign bank accounts with a total value of over $10,000 at any point during the tax year. For instance, if you have one bank account with $4,000 and another with $7,000, you're over the threshold and need to file. 

Types of Foreign Accounts Affected by FBAR

 Most of the FBAR reporting requirements apply to any foreign bank accounts you have. This includes the following:

• Foreign stock or securities in an account at a foreign institution.
• Accounts at foreign branches of U.S. banks.
• Foreign mutual funds. 
• A foreign financial institution issued life insurance or annuity contracts with cash value.

A few foreign accounts don't trigger an FBAR reporting requirement. You don't have to include the following on your FBAR form:

• U.S. military banking facility accounts.
• Foreign accounts owned by your retirement accounts, such as IRAs.
• Foreign accounts owned by retirement accounts that you're a beneficiary of.
• Foreign accounts that are part of a trust that you're a beneficiary of — in this case, the trust should file the FBAR, not you.
• Correspondent accounts — Also called vostro or nostro accounts, banks typically use these accounts to store money at other financial institutions. 
• Accounts owned by government entities or international financial institutions. 

If you have a lot of foreign assets and are unsure whether they trigger an FBAR reporting requirement, reach out to a tax professional. They can help ensure that you're in compliance. You can find one using our site by clicking "find a tax pro" at the top of the page.

Account Balances and the Reporting Requirement

Now that you know which types of foreign accounts trigger an FBAR reporting requirement, you may wonder how much money you need. FBAR applies to the cumulative balance in your foreign accounts. You have to file an FBAR if the total balance was over $10,000 at any point in the year. 

In many cases, your account balances will be obviously over or under this threshold, and you can easily identify if you have a reporting requirement. But if your account balances are close to the threshold, you'll have to crunch some numbers to see if you need to file. 

How to Determine the Value of Foreign Bank Accounts

To determine how much your foreign bank accounts are worth in U.S. dollars, use the Treasury Reporting Rates of Exchange. The U.S. government generates this exchange rate. The Treasury website has exchange rates for nearly every foreign currency, and you can look at the rate for every single day over the last 20 years. 

Don't just consider the balance in your accounts on the last day of the year because your account balances are likely to fluctuate during the year. If you have a single foreign bank account, figure out the date it had the highest balance. Then, convert the balance to U.S. dollars based on the exchange rate applicable for the last tax of the year. 

If you have multiple accounts, you'll need to add them together. To ensure you were never over the reporting threshold, look at each account's highest balance day and then add in the balances of your other accounts from that same day. You're still supposed to file if your accounts were only over the reporting threshold for a single day. 

How to Take Care of FBAR Filing Requirements

If you're required to report your foreign bank accounts, you must file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Do not submit this form with your tax return. You must e-file through the BSA E-Filing System. 

You can take care of the process entirely online or download a pdf form, fill it out, and upload it. By calling the Financial Crimes Enforcement Network, you can paper file only if you request permission. 

You can authorize your accountant to file for you. To have anyone submit one on your behalf, you need to fill out FinCEN 114a (Record of Authorization to Electronically File FBARs). Don't send this form to FinCEN. Keep it for your records. 

Information Required on the FBAR Return

When filling out your FBAR return, you need the following details. When filing an FBAR online, you should gather this information before starting.

• Your name, date of birth, and address.
• Social security number (SSN) or taxpayer identification number (TIN).
• Foreign identification details if you don't have a TIN.
• Total number of foreign bank accounts. 
• Name and address of the financial institutions.
• Account number.
• The maximum value of your accounts during the calendar year, based on your account balances and the Treasury Exchange Rate.
• The number of owners for jointly held accounts.
• Names, TINs, and addresses of joint account holders.
• Whether you have signature authority or financial interest.
• Account owner details for accounts you only have signatory control over. 
• Explain why you have signatory control — for example, your position if your employer owns the account.

If you're going to have an accountant or tax preparer file for you, provide them with these details along with Form 114a. They will let you know if you need more information.

Reporting Requirements for Spouses

Even if you file your tax return as married filing jointly, you still may need to file your FBAR reports separately. If you individually own an account that your spouse does not own, you need to file separate FBAR forms. 

If you own all of your foreign accounts together, you can file a single FinCEN 114 as long as you meet the following conditions:

• All of the non-filing spouse's foreign accounts are jointly owned with the filing spouse.
• All of the above accounts are noted on the filing spouse's FBAR.
• The filing spouse files the FBAR on time.
• The non-filing spouse has completed Form 114a (Record of Authorization to File FBARs Electronically)

If you don't file a 114a, you both need to file a separate FBAR, even if all of your accounts are jointly owned. 

When Do You Need to File FBAR?

The FBAR due date is April 15th of the year following the year your foreign bank accounts were over the threshold. For instance, if you had over $10,000 in foreign bank accounts in 2021, you should file the FBAR by April 15, 2022. If the 15th is on a holiday or weekend, the due date moves to the next business day. 

The good news is that the government gives you an automatic six-month extension on the FBAR. It's probably easiest to take care of FBAR by April 15th, when you deal with most other tax reporting obligations. But if needed, you can take until October 15th to file.

What If You Missed Your FBAR Filing Requirement?

If you didn't realize that you were supposed to file, there are many ways to take care of your delinquent FBAR reporting obligations. As long as you meet all your other filing obligations, you may be able to go online, file late, and not worry about a penalty. 

Suppose you forgot to file your income tax return or didn't report some of the earnings from your foreign bank accounts. In that case, you may need to use one of the IRS's special programs, such as the Voluntary Disclosure Program or the Streamlined Reporting Procedures. 

A tax professional can help you select the right program and help you get back into FBAR compliance. 

Other Reporting Requirements for Foreign Bank Accounts

The FBAR is not the only reporting requirement you may face if you have foreign assets. The Foreign Account Tax Compliance Act (FACTA) requires you to file Form 8938 (Statement of Specified Foreign Financial Assets) with your tax return if you have more than $50,000 in foreign bank accounts. 

Get Help Meeting Your Reporting Requirements

Still wondering if you have to file an FBAR? Want help understanding and meeting your requirements? Then, contact a tax professional today. Using TaxCure, you can search for CPAs, enrolled agents, and tax lawyers in your area who have experience helping clients meet their FBAR requirements.

Post reviewed by Sean O'Connor, a tax attorney from Connecticut, and Edward Parsons, a CPA based in Florida.

Foreign Bank Account Reporting (FBAR): Delinquent Consequences & Options

The IRS requires taxpayers to report foreign bank accounts with an aggregate balance over $10,000. If you don't report your accounts, you can face significant penalties, but don't panic — in cases of a simple oversight, you can often get back into compliance with little trouble. 

To protect yourself, you need to understand the rules about foreign bank account reporting (FBAR). Ideally, if you're behind, you also need to take care of the situation before the IRS contacts you. Here is an overview of FBAR filing requirements and links to resources with more information. 

What Is FBAR?

What does FBAR stand for? FBAR stands for foreign bank account reporting. You will also see this acronym used after the phrase Report of Foreign Bank and Financial Accounts. That's the name of the form you need to file. 

How Do You File FBAR?

To report your foreign bank accounts to the government, you must file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Don't file this form with your tax return and don't send it to the IRS. Instead, file it online with the Financial Crimes Enforcement Network (FinCEN).

When Does FBAR Need to Be Filed?

The FBAR is due the same day as your tax return — April 15th of the year following the year the balance in your foreign accounts exceeded $10,000. But, every year, you have an automatic FBAR extension until October 15th. As long as you file by October 15th, your FBAR is on time. 

What Information Do You Include on the FBAR?

When you file the FBAR, you will need your foreign account numbers, their highest balances during the year, and contact details for your financial institution. You should report all accounts that you have financial or signatory control over. 

FBAR Reporting Requirements

If the aggregate balance in your foreign bank accounts is over $10,000 at any time in the tax year, you must file FinCen 114 (Report of Foreign Bank and Financial Accounts). You can file this form online through the BSA E-filing system of the Financial Crimes Enforcement Network (FinCEN). 

For a look at who needs to file, the type of foreign accounts affected, and other details, check out the FBAR reporting requirements page. 

What Happens If You Forget to File FBAR?

If you forget to file FBAR, you may be able to file without penalties before the IRS notices. Once the IRS contacts you about an unfiled FBAR, you typically must undergo an examination. The examiner will gather detail about your accounts and why you didn't file. Then, they will decide which penalties to assess. The examiner may just issue a warning with no penalties in some cases.

How to Catch up on Delinquent FBAR

There are several ways to catch up on delinquent FBAR reports, but the filing process varies based on your situation. If you meet certain criteria, you can file as usual. You just need to note why you're filing late. You can generally avoid penalties as long as you have reasonable cause and aren't behind on other tax obligations. 

In other cases, you may need to use the IRS's streamlined FBAR procedures. This is generally the best option if you have unfiled tax returns or unreported foreign income in addition to the unfiled FBARs. The process varies slightly depending on if you live in the United States or abroad. 

Suppose you have committed tax evasion or are worried about criminal exposure due to wilfully not filing your FBAR. In that case, you may need to use the IRS's Criminal Investigation Voluntary Disclosure practice to catch up on delinquent FBAR. For more details on how to file delinquent FBAR, check out the above link.

FBAR Penalties

FBAR penalties are some of the harshest penalties imposed by the IRS. There is no tax due with your FBAR, so you don't owe any back taxes if you don't file. But as of 2022, the IRS can assess non-willful civil penalties of up to $14,489 and willful non-filing penalties up to the greater of $144,886 or 50% of the account balances. 

These penalties can be assessed per account or per unfiled FBAR form. Individual taxpayers with millions in their foreign accounts have been assessed penalties well into the millions. Learn more on the FBAR penalties page.

Appealing FBAR Penalties

You may have to appeal if you cannot negotiate a favorable agreement with the examiner working on your FBAR case. You can appeal both assessed and pre-assessed penalties. Keep in mind that they start to accrue interest once penalties are assessed. That is why it is often better to appeal pre-assessed penalties. 

You can pursue litigation if the appeals case does not go your way. Right now, there are several cases between taxpayers and the government related to FBAR penalties and filing requirements. These cases are shaping the FBAR landscape.

Payment Options for FBAR Penalties

In some cases, FBAR penalties can exceed the balance in your foreign accounts. In other cases, the penalties may be up to 50% of the balance in your account, but if the penalty is based on an old account balance, you may not have the funds anymore. 

Once the IRS assesses the penalties, the IRS expects you to pay them in full. But if you can't, you may be able to make arrangements on your FBAR penalties. Depending on your situation, the options can include payment plans, offers in compromise, hardship status, or penalty abatement.

Reporting Requirements for Specified Foreign Assets

In addition to the FBAR requirements, the IRS requires taxpayers to report specified foreign assets. This rule applies to slightly different assets than the FBAR, and it has a higher reporting threshold. If you have specified foreign assets over the threshold for your situation, you must file Form 8938. There are severe penalties for not filing this form. 

Get Help With FBAR

The FBAR requirements can be complicated, and the stakes are high if you're under examination. Don't deal with FBAR on your own. Get help from a tax professional who is experienced with foreign bank account reporting requirements. 

A tax professional can take care of unfiled FBAR, provide guidance through an FBAR examination, appeal FBAR penalties, or help you make payment arrangements on FBAR penalties. Use TaxCure to search for a local tax professional who can help you with FBAR today. 

Alabama Back Taxes Help: Self-Help and Resolution Options

If you are facing back tax issues with the State of Alabama, you’re in the right place. Whether you are looking for a tax relief professional (EA, CPA, or Attorney) or you want to tackle it yourself, we can help. Below, you'll find state contact information and tax options to save money and/or achieve compliance. You can also search for Alabama tax relief specialists in your area by selecting State Agency, the Alabama Department of Revenue, entering your zip code, and selecting your tax issue.

The Alabama Department of Revenue (ALDOR) collects individual and business taxes. If you have unpaid back taxes, the Collection Service Division of the ALDOR has the right to collect them from you involuntarily. This in-house collection department can garnish your wages, issue tax liens on your assets, seize your bank accounts, or order your assets auctioned off for sale. 

Contact Information for the Alabama DOR

If you need to contact the Alabama Department of Revenue for assistance, use the following phone numbers:

• Individual Taxes: 334-242-1170 option 5
• Business Taxes: 334-242-1170 option 5
• General Inquiries: 334-242-1170 option 5
• Other Matters (Collections): 334-242-1220

If you owe back taxes to the state of Alabama, this guide explains your options and then explores what can happen if you don't pay your taxes. To get help with Alabama back taxes, contact an Alabama tax professional today.

Resolution Options for Alabama Back Taxes

To protect yourself from harsh collection activities, you need to contact the ALDOR as soon as possible and make arrangements to take care of your unpaid state tax liability. Luckily, the state of Alabama has many options for taxpayers who can’t afford to pay their taxes in full, including the following:

Payment Plan for Alabama Back Taxes

The ALDOR may be willing to let you pay off your back taxes in monthly installments. To apply for a payment plan on Alabama taxes, submit an Installment Payment Request with a Collection Information Statement to the ALDOR.

The Installment Payment Request requires you to note the proposed amount of your monthly payment and sign an affidavit agreeing to the terms of the payment agreement. The ALDOR accepts payment plans on a case-by-case basis, and all payment plans may be considered balloon notes where the balance is due at the end of the agreement.

For instance, if you owe $7,200 and the state agrees to accept monthly payments of $100 for four years, you will owe a balloon payment of $2,400 at the end of the agreement. Note that this example uses sample numbers to show you how the balloon payment works. These numbers do not take interest or penalties into account.

Include your first monthly payment with your request. Note that your payment plan may go into default if you get behind on future tax filing or payment requirements. The ALDOR can also revoke your payment plan if your financial situation changes and you can pay your tax liability in full.

Offer in Compromise

An offer in compromise lets you pay off your taxes for less than you owe, but the ALDOR does not accept offers in compromise when taxes are legally due.

If you owe Alabama state taxes, you will not be able to settle them for less than you owe through this type of program. However, you may be able to use penalty abatement to reduce the portion of your outstanding tax liability related to penalties. Or, if you qualify, you may be able to reduce your tax liability through the innocent spouse program.

Alabama Innocent Spouse Relief

Typically, when a married couple files a return together, they are jointly responsible for the tax due. However, under Alabama state law, you may qualify for innocent spouse relief if the following statements apply:

• The tax bill was due to the unreported or misreported income of the other person on your joint return.
• You were unaware and did not have reason to know that the income was not reported correctly.
• You have proof that you didn't know about the issue.
• It would be unfair to hold you responsible for the tax liability.
• You were granted innocent spouse relief from the IRS.

Note that laws can change, and in some cases, Alabama does not keep pace with federal law. For example, in 2011, a woman who was granted innocent spouse relief from the IRS was denied that same relief in Alabama. The federal law had been updated in 1998, but the state law had not followed suit yet.

To avoid these types of risks, you should work with a tax resolution specialist who is experienced with Alabama state taxes and not exclusively focused on IRS taxes.

Alabama Injured Spouse Allocation

In Alabama, you can also apply for injured spouse allocation. This applies in cases where your Alabama tax refund will be seized by the government to cover debts only owed by your spouse.

For instance, if your spouse owes child support or back taxes, the state can keep your refund. However, through this program, you can ensure that the state only keeps the amount related to your spouse and not the amount related to you.

To apply, contact the Alabama Department of Revenue for the appropriate forms that they would like you to file.

Penalty Abatement in Alabama

The ALDOR may be willing to waive penalties if you can prove reasonable cause. Reasonable cause includes death, major illness, natural disasters, inability to obtain records, reliance on the advice of a competent tax advisor, or reliance on the incorrect advice of someone from the ALDOR.

You may also be able to claim reasonable cause if you made an honest mistake — typically, this has to be a one-time error, not a repeated issue. To apply for a penalty waiver, submit Form PWR (Request for Waiver of Penalty) to the ALDOR.

Appeals Process

If you disagree with an assessed tax, you have the right to appeal. You have 30 days from the date of the preliminary assessment to request a conference on your case. During the conference, you have the right to present your opinions and discuss your case with a designated hearings officer.

Then, the ALDOR will enter a final assessment. You can appeal a final assessment with the Alabama Tax Tribunal or Circuit Court. Additionally, if your preliminary assessment hasn't been finalized within five years of the date of entry, you can also appeal that assessment to these courts.

Alabama Tax Amnesty Program

A tax amnesty program allows qualifying people with unpaid taxes and unfiled returns to come forward voluntarily without facing persecution. Tax amnesty programs tend to be very infrequent. Alabama last had a three-month amnesty period in 2018.

Bankruptcy

In very specific cases, you may be able to discharge some state taxes through a bankruptcy case. However, some state taxes absolutely cannot be discharged through bankruptcy. Talk with your bankruptcy attorney for details.

Note that when you file for bankruptcy, the courts issue a temporary stay that prevents creditors (including the ALDOR) from taking collection actions against you. If you receive a Final Notice Before Seizure from the ALDOR while you are in the midst of a pending bankruptcy case, call the Collection Services Division at (334) 353-8096 as soon as possible. Make sure to have the details of your bankruptcy case nearby.

Tax Collection Enforcement Actions in Alabama

The ALDOR can use a wide range of tactics to collect unpaid state taxes. In many cases, once these collection actions have been started, they can be difficult or impossible to reverse. That is why you should contact the ALDOR and make arrangements on your unpaid tax bill as soon as you can.

If you ignore Alabama state taxes, you may end up facing the following collection actions.

Tax Liens for Unpaid Alabama Taxes

The state of Alabama can file a tax lien in the Office of the Judge of Probate in the county where you live or own property. You will not be able to sell or transfer your property until the lien has been removed.

The ALDOR does not send a record of the lien to the credit reporting agencies, but the lien is public information and the credit reporting agencies have the right to obtain this info from the county courthouse. If the credit bureaus access this information, the lien will appear on your credit report for seven to 10 years, and it can seriously impair your ability to take out loans or access credit.

Tax Levy for Alabama Back Taxes

A tax levy is when the government seizes your assets to cover your unpaid tax liability. In Alabama, the ALDOR uses the following tax levies:

• Wage garnishment — The state can levy up to 25% of your gross wages.
• Bank levy — The state can seize the full amount in your bank account up to the tax bill.
• Garnishments of third-party holdings — The state can seize insurance proceeds, rental income, or other third-party property owned by you.
• Tax refund offsets — The state can seize your state tax refunds, and it can use the federal offset program to take your IRS refunds as well.

The state can also use a writ of execution to seize and sell your real or personal property.

Writs of Execution

If you have unpaid taxes in Alabama, the ALDOR can ask the sheriff to auction off your property on the courthouse steps to the highest bidder. For real property, you can redeem your property if you pay the total tax liability, the cost of the sale, and the accrued interest. You cannot redeem personal property.

Tax Penalties Charged

If you file a return late, the late-filing penalty is 10% of the tax due or $50, whichever is higher. If you file but don't pay, the late penalty is 1% of the tax due every month, up to a total penalty of 25%. For instance, if you owe $1,000 and pay a day late, your penalty is $10. The next month you pay late, you incur another penalty for 1% of the balance, and so on until you pay the tax or reach the 25% limit.

For business taxes due monthly or quarterly, the late payment penalty is 10% of the tax due. This penalty applies to sales, gas, motor fuels, tobacco, dog race track fees, and several other business taxes.

Loss of Liquor License

If your business taxes are seriously delinquent, the ALDOR can petition the ABC Board to revoke your liquor license. You will not be allowed to sell liquor until you have paid the tax or made other suitable arrangements with the state.

Notices About Delinquent Taxes in Alabama

When you file a state tax return and don't make a payment, the ALDOR will send you notices about the unpaid taxes. The state will also send notices about taxes it has assessed against you. You should receive a notice about preliminary assessments, written information about how to appeal an assessment, and notices about collection actions the state is going to take against you.

One common notice is the Final Notice Before Seizure. This notice means that the ALDOR has gotten serious about collecting the debt, and it will pursue advanced collection actions if the tax bill is not paid in full within 10 days of the date on the letter.

Statute of Limitation on Tax Debt

Generally, there is a six-year statute of limitations on collecting delinquent taxes in Alabama. However, the statute can vary based on the situation. If you omit more than 25% of your income or if you commit state tax fraud, the state may be able to assess and collect taxes owed for an indefinite period of time.

However, this is a civil statute of limitations. The state has just six years to bring criminal tax fraud charges against you. The clock for that crime starts ticking on the date of the last act related to the attempt to evade.

Get Help Dealing With Alabama Back Taxes

You don't have to deal with Alabama back taxes on your own. Whether you have unfiled state returns, unpaid state taxes, assessments that you want to appeal, or other tax issues, a tax pro can help you. To learn more, contact a tax professional experienced with the ALDOR today or leverage the “find a local tax pro” button at the top of the page.

Louisiana State Offer in Compromise: How to Pay Less

The Louisiana Department of Revenue (LDR) has the ability to settle state tax liabilities up to $500,000 for less than you owe. The LDR will only settle tax bills when there is serious doubt of liability or doubt of collectibility. In other words, the state will only approve an offer in compromise if it believes that you are unlikely to owe the tax or unlikely to be able to pay the tax.

Typically, only a small number of taxpayers qualify for this program, and to get approved, you need to complete the application carefully and correctly. To learn more and to get help applying, contact a Louisiana tax professional today.

How to Apply for a Louisiana Offer in Compromise

To apply for an offer in compromise, individuals must complete Form R-20223 (Statement of Financial Condition for Individuals). Corporations, trusts, and estates should use Form R-20222 (Statement of Financial Condition for Businesses). Sole proprietorships and partnerships should submit both forms.

If you're applying based on doubt as to collectability, you also need to include all of the documents listed on Form R-20211 (Document Checklist for Offer in Compromise Based on Serious Doubt as to Collectability).

You can find all of these forms plus instructions in the Louisiana Department of Revenue: Offer in Compromise Program booklet. If you have applied for an IRS offer in compromise in the last three months, you can send that form to the LDR instead of the state forms. `

How to Fill Out the LA OIC Application

When filling out the offer-in-compromise application, you must include your name, business name, contact details, type of delinquent taxes, and the amount due. Then, you must make an offer and explain why you are requesting an offer in compromise.

Again, you can request an offer in compromise for the following two reasons:

• Doubt as to collectibility — you can't afford to pay the tax.
• Doubt as to liability — you don't believe you owe the tax.

Regardless of the reason you choose, you must write out a detailed explanation. Note that you cannot apply based on doubt as to liability if the tax has already been judged as final by a court or the Louisiana Board of Tax Appeals LaBTA. If you apply based on doubt as to collectibility, you must include detailed financial information about yourself and/or your business as well as a long list of financial documents with your application.

Finally, you must sign a document certifying that you understand the terms of the OIC program. Your signature also allows the LDR to pull your credit report and request financial documents from your bank or the IRS.

How Much Should You Offer When Trying to Settle LA Taxes?

The perfect offer is the lowest amount that is likely to be accepted by the state. But determining this number is tricky. To narrow in on the optimal offer, you need to understand what the LDR considers when assessing your offer.

To determine whether or not to accept your offer, the LDR looks closely at the details in your financial statement. If the state believes that your offer represents the most the state is likely to be able to collect, the LDR will accept your offer. If the state believes that you can pay more, your offer will be rejected.

This is why it can be critical to work with a tax professional. They understand exactly what the state is looking for. They can help you present your financial details and your offer in the most advantageous way possible.

Application Fees and Down Payments for the LA OIC

As of 2022, you must include a $186 application fee plus a down payment of 20% of the offer.

For instance, if you offer to pay $10,000, you must send $2,186 with your OIC application. That is 20% of the offer plus the application fee.

Financial Documents to Include with Your OIC Application

When you submit the OIC application to the LDR, make sure you include the following supporting documents:

• Federal tax return for the last two years.
• Bank statements for the last six months.
• Statements for retirement accounts and pensions for the past six months.
• List of securities you own and their market value.
• Life insurance policy statements.
• List of all items in safe deposit boxes.
• Statements for loans and lines of credit.
• Copies of all judgments from the last six years.
• Proof of employment or other income for taxpayer and spouse
• Denials of loan requests by two or more financial institutions.

What to Expect When You Apply for a LA OIC

When you apply for an offer in compromise, interest and penalties will continue to accrue on your account. If you are in a payment plan, the LDR expects you to continue making payments as usual. State tax liens will stay in place until your offer is accepted and paid in full.

If the LDR seizes your federal or state tax refunds, those amounts will not be included in your offer. Similarly, any amounts collected by the LDR while the offer is pending will not be included.

Here's a quick example. Imagine that you owe $20,000 in LA taxes. You offer $10,000 to settle your tax bill. While reviewing your OIC application, the LDR intercepts an IRS tax refund for $1500 and garnishes your $1000 of your wages. Those payments reduce your tax liability to $17,500, but they don't affect your offer. If the LDR accepts your offer, you still pay the full $10,000.

What Happens if the LDR Rejects Your Offer in Compromise

If the LDR rejects your offer, the tax liability is due in full, and the state has the right to start collection actions on your account. Your down payment will not be refunded. It will be applied to your account.

The LDR may reject your OIC application if any of the following apply:

• You're under criminal investigation or pending prosecution.
• You're filing bankruptcy.
• The application was missing details.
• The application didn't have the right signatures.
• Your offer was zero.
• Your offer includes an amount already collected.
• You have used the OIC program in the last 10 years.
• You didn't include all of the required financial statements.
• You forgot to include the power-of-attorney (POA) form if required.
• You didn't include the application fee or the down payment on the offer.
• Your offer is less than the LDR believes it will be able to collect on the tax liability.

You cannot appeal a rejected offer. To improve your chances of approval, you need to ensure you fill out your application carefully, and you may want to work with a tax pro.

What Happens If the LDR Accepts Your OIC Application

The LDR will notify you by mail if your offer is accepted. You must pay off the remaining balance by the date specified in the letter. If you fail to make the payment or if your check bounces, the state will void your OIC agreement.

A LA OIC gives you a fresh start. The state expects you to stay compliant with filing obligations after this date. If you fail to file a return or pay a tax owed in the next 10 years, the state can void your offer and demand full payment.

Contact a Louisiana Tax Pro for Help Today

An offer in compromise can help you save money on your state tax bill, but it isn't the right solution for everyone. To get help identifying the best resolution method for your LA state taxes, you need a tax professional experienced working with the LDR. Check out this list of LA tax pros in your area and get help today.
 

LA State Tax Payment Plan: How to Apply for an Installment Agreement

The Louisiana Department of Revenue (LDR) may be able willing to let you make payments if you cannot afford to pay your tax liability in a lump sum. LDR offers payment plans for both individual and business taxpayers.

To help you decide if an installment agreement is right for your situation, here is an overview of the rules and the application process.

Payment Plan Terms

Individuals can request payment plans ranging from six to 36 months. If you can pay off your tax liability in less than six months, you don't need to apply for a payment plan. Taxpayers who need longer than 36 months should contact a tax professional to talk about alternative options.

The state allows businesses to request payment plans on employer withholding tax, sales and use tax, corporate income tax, corporate franchise tax, and other business taxes. The installment agreement application for businesses does not specify a time limit for payment plans.

Application Fees for LA Tax Payment Plans

The application fee for payment plans on individual income tax is $105. You don't have to pay the fee if your adjusted gross income (AGI) is less than $25,000.

If the LDR accepts your request for a payment plan, the $105 will be applied to your tax bill. If the state denies your request, you will not get the $105 back.

Businesses also must pay a $105 application fee. This amount is non-refundable and will not be applied to your tax bill.

Down payment on Louisiana Payment Plans

The state requires individuals to make a 20% down payment when they apply for a payment plan. For instance, if you owe $10,000, you should send a $2,000 down payment with your application.

The LDR encourages businesses to remit a 20% down payment, but it is not always required. If you are applying for a payment plan on LA business taxes, you may be able to get approved without making a down payment.

Who Should Apply for a Payment Plan?

If the following statements apply to your situation, you may want to apply for a payment plan on your LA back taxes:

• You agree with the tax bill.
• You cannot afford to pay the tax bill in full in the next six months.
• You can afford to make monthly payments.
• You are unlikely to qualify for other resolution options such as reducing your tax bill through an offer in compromise or innocent spouse relief.

When you apply for a payment plan, you are agreeing with the tax due. Once you apply, you lose the right to dispute the tax or ask for a refund of your payments.

What to Expect When You Have a Payment Plan in Louisiana

When you have a payment plan, your payments will be automatically debited from your bank account. Individuals must pay monthly, but businesses can make weekly, bi-weekly, or monthly payments.

While making payments, you may still receive billing notices from the LDR. Interest and penalties will continue to accrue on your account, and the state may also place a lien on your assets. The LDR will also take your federal and state tax refunds and apply them to your balance due.

The state expects you to stay compliant with filing and payment obligations. If you don't file your state tax returns or if you miss tax payments, your payment plan may go into default.

What Happens If You Miss a Payment?

If you miss a payment, your LA installment agreement will go into default. The balance will be due immediately, and the state has the right to start collection actions including wage garnishments and asset seizures.

You have 60 days to request a reinstatement of your payment plan, but there is a $60 fee.

How to Apply for a Payment Plan in Louisiana

To apply for a payment plan on LA back taxes, individuals can apply online or by mailing Form R-19026 (Installment Request for Individual Income Tax) to the LDR.

Businesses can apply online or they can mail or email Form R-19027 (Installment Request for Business Tax) to the LDR. To apply for a payment plan over email, send the paperwork to Business.Tax@LA.GOV.

Both the individual and business applications are relatively short and straightforward. Individuals must note their contact details, tax owed, and gross wages. Businesses need to note all of their tax account numbers and the amount due for each type of tax.

To authorize direct debit, you need to include your bank account details and attach a voided check to your application. Your application will not be approved without these details.

In some cases, the LDR may want additional information about your financial situation. Make sure to respond to these requests promptly or your application may be rejected.

Get Help With Louisiana Back Taxes

If you have unfiled returns, unpaid tax liabilities, or other issues with the Louisiana Department of Revenue, a tax pro can help you. At TaxCure, we provide you a means to find local tax professionals who have experience working with the LDR, and when you search on our site, you can look at each professional's experience and ratings to ensure they meet your needs.

Don't let tax issues stress you out. Instead, get help finding the best resolution option for your situation — contact an LA tax pro today to talk about payment plans and other options for LA back taxes.