You must file a report with the IRS if you have offshore financial accounts with an added value of more than $10,000 at any time during the calendar year. The deadline to file FinCEN Form 114, Foreign Bank and Financial Account Report (FBAR) is June 30 of each year. Failure to file can incur huge civil or criminal penalties on those accounts. Both the IRS and the Financial Crimes Enforcement Network (FinCEN) have authority over the FBAR program, but the IRS now has responsibility for conducting the assessment and enforcement of FBAR penalties for non-compliance. The bottom line is that you have the legal right to appeal IRS decisions if you believe the penalty has been arbitrarily imposed. In this article, we will explore some key points of the FBAR appeal process.
IRS Office of Appeals
First, you do not need to make any payment of the FBAR fines until the appeal process is complete. Also, keep in mind that the statute of limitations is different for FBAR evaluations and FBAR collections. Assessment of an FBAR ticket is done by a local tax examiner, but FBAR ticket appeals are handled at the IRS Office of Appeals in a centralized location where there will be an FBAR Coordinator who will ensure that resolutions are consistent throughout the country. Since it is a coordinated issue, a referral to the IRS International Operations department is required before the first conference can be held.
Penalty assessment: two types
Pre-assessment of appeals
If the taxpayer disagrees with the assessment of the FBAR penalty, they must appeal within 45 days. This will be considered a pre-evaluation appeal. Pre-assessed FBAR sanctions are eligible for Fast Track Settlement (FTS) and also Fast Track Mediation (FTM), but only if Letter 3709 has not been issued to the taxpayer. So remember, there is no better time than now to appeal.
Post evaluation of appeals
If there are fewer than 180 days left in the statute of limitations for assessment, the IRS may assess FBAR penalties at the time the appeals department receives your case. Does this mean that you can no longer appeal if the expiration date of the statute is nearing? You are welcome; can. In a scenario like this, you will be given post-assessment appeal rights. Post-assessment FBAR cases will be handled on an expedited basis and must be processed within 120 days of assignment. Fast Track Settlement (FTS) or Post Appeal Mediation (PAM) rights are not available in post review appeal cases.
Litigation Options
You may file a complaint in District Court or in the Court of Federal Claims to challenge the penalty imposed. Once you’ve gone through a process known as “exhausting your administrative remedies,” you’re eligible to file a lawsuit in court, disagreeing with the record on which the IRS claim is based. The involvement of a tax attorney familiar with the nuances of FBAR procedures (such as “intentional” and “unintentional” penalties) may be beneficial at this point and may help you win your FBAR ticket appeal.