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FBAR FUBAR? The IRS may cut you a deal.

March 30, 2009

The IRS is reducing penalties for taxpayers who self-report delinquent foreign bank account filings. As the penalty for failing to file foreign bank accounts is the greater of $10,000 or 50% of the account balance, a few years of not filing Form 90-22.1 can wipe out your accounts pretty quickly if the IRS catches you.

The New York Times reports:

Under the plan, the I.R.S. will cut a penalty for not filing a Report of Foreign Bank and Financial Account, known as an Fbar — something offshore tax evaders have not done, to avoid detection by the I.R.S.

The current penalty is up to 50 percent of the highest annual balance of each account for each of the last three years — an amount that can quickly wipe out an investor and still leave him owing taxes and interest. While the number of Americans coming forward this year to disclose hidden assets has doubled, the I.R.S. said, it is still not enough.

Now, the I.R.S. will reduce that penalty to 5 to 20 percent, depending in part on whether the wealth was inherited. It will also levy the penalty just once, on the highest balance in the accounts over the last six years.

More from The TaxProf.

UPDATE, 3/31: Tax Lawyer Peter Pappas says the IRS offer is a good deal:

If you have owned a foreign bank account in the past five years and have not disclosed it to the IRS, we urge you to take advantage of the IRS’s voluntary disclosure program. If you do not do so and the U.S. discovers your non-compliance on its own, you can expect it to assess the full amount of penalties and seriously consider criminal prosecution.

Tags: FBAR.Peter Pappas.

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