U.S citizens who have a financial interest in one or more foreign financial accounts must submit a report to the U.S treasury by electronically filing “Report of Foreign Bank and Financial Accounts (FBAR)”, when the aggregate value of those accounts exceeds $10,000. Failure to comply with the FBAR reporting or even record keeping requirements can result in hefty penalties. However, you have the right to appeal against the proposed FBAR penalties if the IRS assessment does not reflect things correctly. But there are certain important factors on FBAR penalty appeals that you have to know.
Assessing the penalty
First off, you don’t have to pay any kind of penalties right till the conclusion of the appeal process. Remember, the statute of limitations differs between civil and criminal FBAR penalties. Also the statute of limitations on assessments (ASED) is not the same as collection statute expiration date (CSED). The FBAR penalty will be calculated by your local examiner but only the Office of Appeals will act as a dispute resolution forum for your appeal against the IRS compliance action. FBAR penalties come to Appeals either as stand-alone cases or together with a related income tax or international penalty.
Two types of appeals
Pre-assessment FBAR cases
FBAR penalty cases can be sent to Appeals either pre-assessment or post-assessment but typically, they are received in pre-assessment stage, which is before any penalty is imposed on foreign accounts. You can become eligible for Fast Track Settlement (FTS) if you have received the notice prior to the actual assessment and if you haven’t received FBAR 30 day letter (Form 3709).
Post-assessment FBAR cases
In appeal cases where there is less than 180 days remaining on the statute of limitations and when no statute extension is secured by the IRS, FBAR penalties can be assessed and the collection process can take place. However, post-assessment appeal rights are still available to you. These appeal cases will be handled on priority basis and has to be completed within 120 days from the date the Appeals Officer is assigned to the case. But note that Post Appeals Mediation (P.A.M.) or Alternative Dispute Resolution (A.D.R.) rights are not available in a post-assessment Appeals procedure.
The IRS has two years from the date of assessment to file a suit in federal court for the collection of assessed FBAR penalty. If you do not agree with the record that the IRS has made or by proving that you have tried to exhaust all available administrative remedies, you may litigate against the FBAR penalty decision.
To best represent your case, it is important to stay on top of changes. Contact a FBAR attorney, if you have any questions or concerns about unreported foreign assets or the recent changes in FBAR process.